Key Takeaways

  • A single-member LLC for California filing purposes is treated as a disregarded entity for federal tax but still must meet state tax requirements.
  • All California LLCs must pay an $800 annual franchise tax via Form 3522, regardless of business activity.
  • If a single-member LLC earns over $250,000 in total income, it must also pay an additional LLC fee via Form 3536.
  • Single-member LLCs must file Form 568, even if no income is generated, unless they elect corporate taxation.
  • Additional obligations may include sales tax registration, employment tax registration, and filing a Statement of Information (Form LLC-12).
  • The IRS allows single-member LLCs to be taxed as disregarded entities, partnerships, or corporations—tax classification depends on elections made.
  • Business licenses and permits may be required based on your industry and location.
  • Inactivity does not exempt an LLC from taxes—formal dissolution is required to stop tax liability.

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.

Requirements for a Single-Member LLC for California Filing Purposes

A single-member LLC for California filing purposes is generally treated as a disregarded entity, meaning it does not file its own federal tax return but instead passes profits and losses through to the sole member. However, the state of California imposes distinct filing and tax obligations regardless of the LLC’s disregarded status at the federal level.

For California purposes, a single-member LLC must:

  • File Form 568 (Limited Liability Company Return of Income) annually, even if it has no income or business activity.
  • Pay the $800 annual LLC tax using Form FTB 3522, due by the 15th day of the fourth month of the tax year.
  • Pay an additional LLC fee using Form FTB 3536 if total income exceeds $250,000. This income includes worldwide income if it’s derived from or attributable to California sources.
  • Report the income, deductions, and credits on Schedule B of Form 568.
  • Complete Schedule T of Form 568 if it has Nonconsenting Nonresident (NCNR) members (rare in single-member LLCs).
  • Submit Schedule IW to report total income from all sources to calculate the correct LLC fee.

While single-member LLCs are not taxed at the federal level as separate entities unless they elect corporate taxation via IRS Form 8832, California still requires compliance with its filing regime for all LLCs conducting business or registered in the state.

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.

LLC Formation and Name Filing Requirements

When forming a single-member LLC in California, it's important to comply with California's Revised Uniform Limited Liability Company Act. This includes:

  • Naming the LLC: The name must include “LLC,” “L.L.C.,” or “Limited Liability Company” and must not contain misleading or restricted words such as "bank," "trust," or "insurance."
  • Filing Articles of Organization: Submit Form LLC-1 with the Secretary of State online or by mail, along with the $70 filing fee.
  • Designating a Registered Agent: The agent must be a California resident or a registered corporate agent.
  • Preparing an Operating Agreement: Although not required, it's strongly recommended to outline management structure, responsibilities, and liability protections.
  • Filing a Statement of Information: Form LLC-12 must be filed within 90 days of formation and biennially thereafter.

Reserving a business name is optional but available through the Secretary of State's bizfile system for a small fee.

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. 

Federal Taxes

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.

Federal Tax Filing Options for Single-Member LLCs

By default, a single-member LLC is considered a disregarded entity for federal tax purposes. This means the owner must report all income and expenses on Schedule C of their personal IRS Form 1040.

However, a single-member LLC can choose to be taxed as:

  • A C corporation by filing IRS Form 8832.
  • An S corporation by filing IRS Form 2553 (if eligible and timely).

Tax consequences differ significantly:

  • As a disregarded entity, the owner pays self-employment tax on net earnings.
  • As a corporation, the LLC pays corporate tax and may reduce self-employment taxes but must manage payroll, corporate formalities, and potentially double taxation (unless an S corp election is made).

Even disregarded entities must obtain an EIN (Employer Identification Number) if they hire employees or elect corporate taxation.

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. 

Important Considerations for Inactive or Dissolving LLCs

If a single-member LLC becomes inactive or no longer conducts business in California, it is crucial to formally cancel the LLC to avoid ongoing tax obligations. California continues to assess the $800 minimum franchise tax annually until the LLC is legally dissolved, even if it has no income.

Steps to cancel a California LLC include:

  • Filing Form LLC-4/7 with the Secretary of State.
  • Ensuring all taxes, fees, and returns are filed and paid.
  • Confirming the business has ceased all operations.

Failure to properly dissolve the LLC can result in:

  • Accrual of tax liabilities and penalties.
  • Suspension or forfeiture of LLC rights.
  • Ineligibility to do business or appear in court in California.

It is advisable to consult a business attorney or tax professional to ensure the LLC's cancellation is handled properly and completely.

Frequently Asked Questions

Do I need to file Form 568 for a single-member LLC with no income?Yes. Even if your SMLLC earns no income or remains inactive, you must file Form 568 annually unless the LLC is officially dissolved.

Can I avoid the $800 California franchise tax for my single-member LLC?Generally, no. All LLCs doing business or registered in California must pay the tax. Some new LLCs may qualify for a first-year exemption under certain programs.

What taxes apply to single-member LLCs in California?You may owe the $800 annual franchise tax, an LLC fee (based on total income), self-employment tax (federal), and sales or employer taxes if applicable.

How do I file federal taxes for a single-member LLC?By default, you report your LLC’s income and deductions on Schedule C of your Form 1040. You may opt to be taxed as a corporation by filing IRS Form 8832 or 2553.

When should I dissolve my LLC in California?If you're no longer doing business or planning to operate, dissolve your LLC as soon as possible using Form LLC-4/7 to avoid continued state tax liability.

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