Key Takeaways

  • California LLCs must pay an annual $800 franchise tax, regardless of income or business activity.
  • An additional California LLC fee (based on total income) applies to LLCs earning $250,000 or more annually.
  • Other mandatory costs include a $70 formation filing fee, $20 Statement of Information fee, and potential business license fees.
  • Failure to pay estimated LLC fees in a timely manner can result in penalties and interest.
  • California offers tax relief for first-year LLCs formed in 2021 or later.
  • Additional fees may apply for expedited filings, name reservations, registered agents, and certified copies.
  • Local taxes and insurance requirements can increase the total cost of maintaining an LLC.

California LLC Tax

California LLC tax can be tricky for any small-business owner so it's best to clarify your tax schedule as soon as possible. If the income for the fiscal year is:

  • Less than $250,000 (which would include any loss), the total CA tax owed is $800 (LLC Tax plus $0 for an LLC fee)
  • It is $1700 ($800 LLC Tax plus a $900 LLC fee) if it falls between $250,000 and $499,999;
  • $3,300 ($800 LLC tax and $2,500 LLC fee) if the total income is between $500,000 and $999,999
  • $6,800 ($800 LLC tax and $6,000 LLC fee) if the income falls between $1,000,000 and $4,999,999  
  • CA tax owed is $12,590 ($800 LLC Tax plus an $11,790 LLC fee) if the income is more than $5,000,000

Just about all California LLCs and out of state LLCs that do business in California must pay the $800 a year franchise tax -- whether or not they did business or lost money. Also, regardless of whether or not a business is fully in operation for an entire year doesn’t matter; the full $800 is due come tax season. Now, of course, there are some exceptions. If a business is in operation for a very short period of time and does not do any business is one. Other exceptions include nonprofit companies that have a tax exemption status, an LLC owned and operated by a U.S. Armed Forces veteran, and LLCs that choose to have a small business corporation taxation status (otherwise known as an S corporation).

Before 2007, the FTB (or the Franchise Tax Board) would tax all worldwide revenues of Californian limited liability companies; however, the Northwest Energetic Services, LLC vs. California Tax Board and the Ventas Finance I, LLC vs. Franchise Tax Board court cases determined that the FTB could only place LLC fees to sums of money allocated directly from California business. So as of today, one’s total income is determined by the revenues from California, but can vary because of complicated definitions in California’s Revenue and Taxation Code.

Any LLCs that paid too much can request a refund. Again, the $800 a year LLC tax is expected no matter how much business was done that tax year, but of course, some exceptions do apply. Do note, though, that LLC tax does accumulate every year; therefore, if an LLC is still listed as active but, in fact, is not, then the tax will continue to build up.

Some argue whether or not it would have been more aptly named had it instead been called the LLC fee instead of the LLC tax because it is more of a privilege fee than anything else. People must pay for the right, or again the privilege, of doing business in California. Likewise, the LLC fee would have been more aptly named the LLC tax because it is based on the amount the LLC brings in during a fiscal year.

Note that LLCs may choose to operate on a different fiscal year as opposed to the calendar year if it suits their needs better. LLC taxes must be paid alongside any U.S. federal income taxes that are due and do not rely upon any profits made that fiscal year (which is the opposite of how California taxes corporations based in the state).

Additional Formation and Compliance Fees

Beyond the $800 franchise tax and income-based California LLC fee, there are several additional mandatory and optional costs to consider when forming and maintaining an LLC in California:

  • Filing Articles of Organization: $70 (one-time fee)
  • Statement of Information: $20 (due within 90 days of formation and every two years thereafter)
  • Registered Agent Fees: While an owner can serve as the agent, hiring a third-party service typically costs $50–$250 annually.
  • Name Reservation (Optional): $10 to reserve a business name for 60 days.
  • Expedited Processing: Options range from $350 (24-hour service) to $750 (same-day), with a 4-hour in-person processing available for $500.
  • Certified Copies: $5 for an official stamped copy of your LLC filing, often required for banking and licensing.
  • Business Licenses and Local Fees: Costs vary by city or county. For example, San Diego charges $34 for small businesses; San Francisco charges $57 plus a $4 state fee for businesses earning under $100,000.

These additional fees can raise the first-year cost of forming an LLC to approximately $1,000–$1,600 depending on your choices and location​.

California LLC Fee Payment Schedule and Deadlines

The California LLC fee, based on gross income from California sources, is due annually and must be estimated and paid by the 15th day of the 6th month of your LLC’s tax year—typically June 15 for calendar-year filers.

Here’s how the estimated fee (Form 3536) works:

  • You must estimate your total California income for the current year and pay the appropriate fee.
  • If your estimate is too low, you may owe penalties and interest.
  • After the tax year ends, you report your actual income and reconcile payments on Form 568.

Failing to pay the estimated fee on time, even by mistake, can trigger penalties of 10% of the unpaid fee plus interest​.

First-Year Exemption for New LLCs

California law provides an exemption from the $800 franchise tax in the first year for LLCs that:

  • Registered with the California Secretary of State on or after January 1, 2021, and
  • Did not conduct any business prior to registration.

However, the exemption does not apply to the California LLC fee. If your LLC earns $250,000 or more in its first year, the fee must still be paid.

After the first year, all LLCs must pay the $800 franchise tax regardless of income or activity​.

Local and Industry-Specific Fees

In addition to state-level fees, your LLC may incur local business taxes or license fees. These fees vary widely depending on the location and nature of your business. Examples include:

  • San Diego: $34 annual tax certificate fee for businesses with up to 12 employees.
  • San Francisco: $57 license fee for businesses under $100,000 in gross receipts, plus a $4 state fee.

Some municipalities base fees on factors like employee count, business category, or square footage. Be sure to check with your city or county to determine applicable licensing and tax obligations​.

Increased Self-Employment Tax

There are perhaps a few reasons why a California LLC should not operate a business, but the main one is that each member of the LLC will have a very noticeable self-employment tax to pay each fiscal year. Unless the LLC chooses otherwise, each LLC is treated by California either as a sole proprietorship when it only has one person, or is treated as a partnership when there are two or more. This comes into play whenever the business begins pulling in money.

That money (or net income) is taxed as self-employment income at 15.3 percent, but this doesn’t include the normal federal and state taxes. On the other hand, if that same LLC was considered a corporation, that person would instead only pay a 15 percent capital gains tax on profit distributions instead of a self-employment tax. Moreover, if it were listed as an S Corporation, they would only pay a 7.65 percent employment tax on salaries. Profits that come from dividends are not taxed as income or payroll but, instead, at the 15 percent capital gains rate.

Insurance and Employment-Related Costs

If your California LLC has employees, you are required to carry workers’ compensation insurance, which can cost around $62 per month on average. Factors that affect the premium include:

  • Number of employees
  • Industry risk level
  • Location
  • Payroll size
  • Claims history

Optional insurance coverage, such as general liability or property insurance, may also be beneficial, depending on the nature of your business. These added protections help safeguard your LLC from lawsuits, property damage, or business interruptions​.

Frequently Asked Questions

1. What is the total cost to form and maintain an LLC in California for the first year? Typically, it is between $1,000 and $1,600, including the $70 filing fee, $20 Statement of Information fee, $800 franchise tax, and optional services like registered agents or certified copies.

2. Do I need to pay the $800 franchise tax in the first year? Not if your LLC was formed on or after January 1, 2021, and didn’t conduct business prior to formation. This exemption applies only to the $800 tax, not the income-based LLC fee.

3. What happens if I miss the estimated LLC fee deadline? Late payments can result in a 10% penalty and interest charges. Be sure to file Form 3536 and pay the estimated amount by the 6th month of your tax year.

4. Can I avoid the California LLC fee by forming an LLC in another state? No. If your LLC conducts business in California, you must register as a foreign LLC and still pay the $800 franchise tax and any applicable California LLC fee.

5. How often do I need to file the Statement of Information? Initially, it is within 90 days of formation and then every two years. The filing fee is $20, and failure to file can result in a $250 penalty.

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