California LLC Requirements: Everything You Need to Know
California LLC requirements are important steps in the process of starting a limited liability company (LLC) within the state.3 min read
California LLC Taxes and Fees Requirements
California LLC requirements are important steps in the process of starting a limited liability company (LLC) within the state. California has a requirement that all LLCs must file statements of information in the five months before the anniversary date of the LLC's formation or by the last day of the month the business was originally formed.
The fee to file the statement of information in California is $20. Additionally, California imposes a minimum franchise tax of at least $800. This amount is due within the first three months of forming the business and every year following the first year. If an LLC has employees, the company must also obtain an EIN from the IRS. Before an LLC owner can open a bank account for business expenses, the bank will typically require an EIN. The state doesn't require LLCs to have tax identification numbers.
- The company conducts business, is registered, or is organized in the state.
- The company hasn't elected for corporation taxation, which means it is taxed as a sole proprietorship or partnership, referred to as disregarded entities.
Any LLC that elects for corporation taxation must follow all state corporate tax laws and regulations. If an LLC's income is over a specific level set by the state, it would be responsible for another fee, based on the total income for the year. Every LLC operating within California must file the LLC return of income, form 568. This must be filed by the 15th of the fourth month following the end of the taxable year for the company.
All multi-member LLCs must obtain an employer identification number (EIN) from the IRS, even when the company doesn't have employees. A one-member LLC can get an EIN if it will elect for corporation taxation instead of taxation as a sole proprietorship, or if it will have employees. An EIN application is available on the IRS website, or you can file form SS-4 with the IRS.
For income taxes, most LLCs are set up as pass-through tax entities. In a pass-through entity, federal income tax responsibility passes through the LLC and lands on any member(s) of the LLC. As a default setup, an LLC doesn't have to pay federal income taxes, but the members do have to pay on any business income.
Along with the $800 tax, required annually, an LLC with more than $250,000 in gross annual revenue will be responsible to pay another fee every year. The amount is based on the income of the LLC. It could be as little as $900 or as much as $11,790, which is the maximum. Both the $800 tax and the applicable additional fee will be paid to the California FTB. Some LLC owners opt for corporation taxation, which is done by completing and filing form 2553 with the IRS. The form is available on the IRS website.
Just like nearly every other state in America, California requires payment of taxes on the income of a corporation. In California, this is referred to as a franchise tax. Within the state, the current franchise tax rate is 8.84 percent of the net income on any applicable transactions. Before you make any type of payment, it's important to review the current fees and tax rates with the California Secretary of State, the California Board of Equalization, and the FTB.
An EIN is also called a federal tax identification number and serves as the identifier for a business. EINs are available for free from the IRS once the company has been formed. If you fail to file in a timely manner, a late fee will apply. This fee is $18 per partner or member, per month. It can be applied for up to 12 months. In addition to the total, a 25 percent penalty will be applied to the total due.
If you fail to pay the correct amount, you will be responsible for a 5 percent penalty on the total amount of unpaid tax. Additionally, you could be fined up to another 0.5 percent per month as long as it remains unpaid. The maximum penalty is 25 percent.
If you need help with California LLC requirements, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.