California LLC Tax Return: Everything You Need to Know
California LLC tax returns are filed for LLC tax, the LLC fee, sales tax, unemployment tax, self-employment tax, NCNR members' tax, and other taxes. Most tax returns in California are due on the 15th day of the third month of the LLC's tax year.3 min read
California LLC tax returns are filed for LLC tax, the LLC fee, sales tax, unemployment tax, self-employment tax, NCNR members' tax, and other taxes. Most tax returns in California are due on the 15th day of the third month of the LLC's tax year.
Classification of LLCs in California
California LLCs can be grouped into three categories for tax purposes.
- Single-Member LLCs. These are regarded as disregarded entities and do not qualify for federal taxes. The LLC owner reports profits and losses on personal tax returns using his/her Social Security number or tax identification number.
- Multi-Member LLCs. Multi-member LLCs are regarded as partnerships. The state of California taxes both the LLC's incomes, deductions, and credits as well as the personal incomes of the owners
- LLC taxed as Corporations. LLCs that have elected to be taxed as corporations are subject to corporation tax laws including paying corporate tax.
Franchise Tax Returns
All LLCs which are organized or registered or conducting business in California are required to file Form 3522 and pay the annual LLC tax. They might also qualify to file Form 3536 and pay the LLC fee.
The California Tax Board requires all businesses in California to file Form FTB 3522 for the LLC tax and Form FTB 3536 for the LLC fee. Form FTB 3522 is filed with a flat payment of $800, and this is paid whether the business has conducted businesses in that tax year or not.
The rates for the LLC fee, on the other hand, vary from $0 to $11,590 depending on the total income of the LLC. Some LLCs are required to report their income but are not subject to the $800 franchise tax. Such companies instead file Form 565.
LLCs treated as corporations can find more details about how to calculate income form the FTB Publication 1060.
Sales Tax and Nonconsenting Nonresident (NCNR) Members' Tax Returns
All LLCs that either sell goods and keep sales tax or have employees must file the Limited Liability Company Return of Income form, Form 568. LLCs use this form to file and pay Nonconsenting Nonresident members' tax and any deficits or penalties after filing the LLC fee.
In addition, LLCs that are treated as partnerships report each members' share of the LLCs finances using California Schedule K-1 on Form 568. Form 568 includes Schedule IW where an LLC should list the total income from California. Schedule T of Form 568, is reserved for the NCNR members' taxes. The form is filed with the Franchise Tax Board (FTB).
LLCs that have elected to be taxed as corporations do not need to file Form 568. Instead, they file Form 100.
LLCs are treated as disregarded entities by the federal government and are not taxed. The only taxes paid are by the members of the LLC. They can file using Form 1040 for single-member LLCs, IRS Form 1065 for LLCs treated as partnerships, or IRS Form 1120 for LLCs treated as corporations.
Delays and Penalties
The California Franchise Tax Board allows for a 6-month extension for Form 568 if the LLC fails to pay Nonconsenting Nonresident (NCNR) members' taxes by the 15th day of the 4th month. In such a case, the LLC can file Form FTB 3537.
LLCs that that pay sales tax and do not file Form 568 will be sent a questionnaire digging for info about their activities in California. Should the questionnaire reveal that the LLC has actually done business in California in that year, then the state will require the LLC to file Form 568 and pay the $800 LLC tax plus an LLC fee that depends on the total income of the LLC in that the year.
If the FTB suspects that the LLC did not file the correct taxes and fees, it will send the LLC a Return Information Notice. LLCs that file the taxes but fail to pay are sent a different notice called a Notice of Balance Due.
The rights of a domestic LLC can be suspended if it does not file or pay any of its taxes or penalties. The rights of a foreign LLC may be forfeited for the same.
LLC owners who no longer wish to do business in California should never quietly abandon the business because inactive LLCs continue to accumulate taxes and penalties. It is best to cancel the LLC by filing Form LLC-4/7.
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