Annual Tax for LLC in California: How Much Is It and When Is It Due?

Every limited liability company (LLC) operating out of California has to pay certain taxes and fees. Whether you’re a controller overseeing compliance across states or a business entrepreneur, you should know these rules like the back of your hand.

This guide explains what you can expect from California LLC taxes and how to stay on top of corporate compliance with Mosey.

What Are the California LLC Tax Rates?

Two main financial responsibilities fall on California LLCs: the yearly franchise tax and an extra LLC charge for companies that make more than $250,000.

Unlike other states, California requires these payments even if your LLC doesn’t generate income. As such, it’s important to keep an eye on your deadlines and amounts.

California Franchise Tax

Each year, every California LLC pays a fixed $800 franchise tax. This tax covers whether your LLC has no income, remains operational, or is dormant. It is non-negotiable; postponing or evading payment might lead to interest and penalties.

When Is the Franchise Tax Due?

Most LLCs pay their franchise tax on the 15th day of the fourth month after the beginning of your tax year. This translates to April 15th for LLCs operating in a calendar year. You may file and pay the tax online via the California Franchise Tax Board (FTB) Form 3522.

What Happens if You Miss the Deadline?

Ignoring on-time payment requirements will result in penalties. Late fines are assessed by California’s FTB, and non-compliance can quickly mount up. Making sure you pay on schedule helps you save these unnecessary expenses.

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Who Has To Pay the LLC Fee?

Should the yearly income of your LLC be $250,000 or higher, you will also be liable for an extra LLC charge. Your LLC’s income for the year will determine the exact amount you owe, as shown below:

Income between $250,000 and $499,999: $900
Income between $500,000 and $999,999: $2,500
Income between $1,000,000 and $4,999,999: $6,000
Income more than $5 million: $11,790

Using Form 3536 (Estimated Fee for LLCs), you will have to estimate this cost in advance and pay it by the 15th day of the 6th month of your tax year. Make sure the estimate is precise, as underestimating might lead to penalties.

What Determines if Your LLC “Does Business” in California?

California has certain guidelines on what it means to “do business” in the state.

Should any of the following apply — even if your LLC is not headquartered in California — you will be deemed as “doing business” and liable for the franchise tax:

Your LLC is commercially domiciled in California or established there.
Your sales total more than $711,538 or represent 25% of all sales, including those made by contractors or agents.
Real or tangible property owned by your LLC in California exceeds $71,154, or 25% of the total.
Pay for compensation in California is more than $71,154, or 25% of your LLC’s total compensation.

Basically, regardless of where your LLC was first founded, if it has strong business ties to California, you will have to pay state taxes.

Are There Exemptions From California LLC Taxes?

California offers a one-time franchise tax exemption for newly created LLCs. This relates to LLCs established between Jan. 1, 2021, and Dec. 31, 2021.

These companies must begin franchise tax payments in their second year, but they don’t have to pay them in their first taxable year. Remember that this exception is limited, so you should double-check if your LLC qualifies.

How To File Your California LLC Taxes Using Form 568

Each year, LLCs must file Form 568, the LLC Return of Income. Together with reporting excess revenue, overpayments, withholding, and other tax info, this form aggregates your franchise tax and LLC fee. Form 568 is also due by the 15th day of the fourth month after the conclusion of your tax year, usually April 15th for LLCs operating in a calendar year,

What Information Is Required on Form 568?

Form 568 requests comprehensive information on the income and taxes of your LLC. This information includes:

Total LLC income
LLC fee and franchise tax amounts
Nonresident members’ tax liability
Withholding and overpayment from prior years
Deductions and use tax
Value of LLC assets and liabilities

Although this form does not call for paying the taxes themselves, you must ensure your compliance and provide the overall financial condition of your LLC.

How To Stay Compliant With California LLC Taxes

Underestimating your tax payments or missing deadlines might result in significant fines. For example, underestimating your LLC may result in a 10% penalty on the underpaid amount. Additionally, LLCs that fail to pay the franchise tax in California face a minimum penalty of $200 plus interest.

Review the following recommended practices to stay on top of these requirements:

Track your LLC’s revenue and tax responsibilities all year long to avoid miscalculations at filing time.
Set reminders to help you avoid late payments and penalties, especially since there are several documents and deadlines to manage.
Use Mosey’s compliance management system to help you effectively organize payroll accounts, tax filings, and other state duties.

With our platform and these strategies in your toolbox, you can confidently stay compliant with all California LLC taxes.

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Why Should You Pay Attention to LLC Compliance?

Although paying the necessary LLC taxes might seem like an administrative hassle, compliance is vital for the reputation and viability of your company.

California is known for its rigorous application of corporate tax rules, and missing deadlines can trigger consequences. Ignoring compliance criteria or being late on your taxes may cause penalties, interest charges, or even suspension of your LLC.

For instance, your LLC risks losing its license to operate in California if it does not pay the yearly franchise tax. In extreme cases, the authorities may even suspend your company’s operational license.

Once this occurs, you are unable to legally create contracts, file lawsuits, or conduct any official state activity. Reversing your business status is more difficult the longer you stay noncompliant.

Should your LLC be suspended, you will have to restore good standing with the state, including paying outstanding taxes, fines, and penalties and completing past-due returns. Staying up to date on your tax responsibilities from the beginning can help you avoid the time-consuming and expensive process that can follow.

How To Avoid Common Pitfalls With California LLC Taxes

Dealing with California’s tax system for LLCs presents challenges for many small firms, especially if they’re new to the state. Some of the most common pitfalls include:

Underestimating Your Income for the LLC Fee

Estimating your income too low and underpaying the LLC fee can trigger a 10% penalty. Track your revenue attentively and modify as needed to avoid this consequence.

Missing Filing Deadlines

California imposes rigorous deadlines for paying the franchise tax and completing Form 568. Put these dates on your calendar so you won’t miss them, or consider using automatic reminders and deadline-tracking tools.

Confusing Federal and State Tax Requirements

It’s easy to assume that paying federal taxes will cover all your obligations. However, California has its own deadlines and forms that must be submitted separately, and its tax laws differ from those of other states.

How Can Multiple Locations Affect Your Taxes?

Your tax responsibilities might become more complicated when your LLC expands and operates across several locations, especially across state lines. Even if your LLC is headquartered outside of California, doing business in the state for even one day can trigger the obligation to pay franchise taxes and LLC fees.

For instance, depending on your income and the volume of your business in California, you can still be liable for California’s tax regulations if you run an online business and sell products to Californian citizens. Companies that transport goods into California or have remote workers there should pay particularly close attention to this stipulation.

How Can Automation Help Your LLC Stay Compliant?

Manually handling compliance as your company grows can be time-consuming and lead to mistakes. Compliance automation technology can relieve some of the stress by tracking your responsibilities. It can remind you of approaching deadlines and help you avoid fines for late payments or erroneous filings.

Mosey’s dashboard, for instance, can help you keep track of tax compliance responsibilities as they develop, ensuring you remain updated about tax deadlines, legislative changes, and other critical tasks.

Automation also facilitates the management of your LLC’s tax forms, payroll, and filings across multiple states and simplifies some of the challenges of compliance. Using Mosey’s automated solutions can afford you more time to concentrate on growing your company while managing the possibility of expensive errors.

Track California LLC Taxes With Mosey

Understanding these crucial deadlines and tax obligations helps keep your California LLC running smoothly. If staying compliant feels overwhelming, Mosey is here to help.

We can streamline your compliance by automating solutions for payroll, tax filings, and other state responsibilities. Simplify compliance today and book a demo with Mosey to make sure your LLC stays on target.

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