Doing business as an LLC in California can be a costly endeavor, with many tax disadvantages that must be taken into account. This article will explain the annual tax that must be paid, even if you are not conducting business, until you cancel your LLC. The $800 California LLC fee is an annual tax that must be paid by all LLCs in the state of California. This fee is due on the 15th of the fourth month from the date you file with the Secretary of State (SOS).
The total income derived from or attributable to California includes gross income, as defined in Section 24271 of R&TC, plus the cost of goods sold, paid for, or incurred in connection with the taxpayer's trade or business. One possible reason for companies in California to avoid doing business as an LLC is related to the increased chances that LLC members will have to pay income taxes for money they haven't actually received. Generally speaking, single-member California LLCs have an expiration date of April 15 and multi-member California LLCs have an expiration date of March 15.In Franchise Tax Board (200165 CA4th 1207), the courts dealt a blow to the FTB, limiting its share of LLC to income fairly allocated to California businesses. R&TC Section 18662 and related regulations require withholding of California income or franchise taxes from payments and distributions made to non-residents of the California source of income.
It is important to note that these charges apply to most LLCs in other states that also do significant business in California. The state defines doing business as actively participating in any transaction for the purpose of obtaining financial or pecuniary gain or gain (R&TC Section 23101 (a)). Because of this, it can be quite costly to operate a business under this structure. The California Uniform Revised Limited Liability Company Act (California Company Code Sections 17701.01 to 17713.1) authorizes the formation of LLCs in California.
If any type of business entity becomes an LLC during the current year, you will generally have a tax liability and filing requirement like the old business entity and the new LLC. An LLC is doing business if any of its members, managers, or other agents conduct activities in California on behalf of the LLC, regardless of where the LLC conducts business. An LLC classified as a public limited company that does not meet the above conditions, but has California-sourced income or that files a request to report an election on behalf of a California resident, must file Form 565, Company Income Statement. LLCs classified as corporations should refer to FTB Publication 1060, Guide for Corporations Starting Business in California.In conclusion, it is important to remember that all LLCs in California must pay an annual fee of $800.
This fee is due on the 15th of the fourth month from when you file with the SOS. Additionally, there are many tax disadvantages associated with operating a business as an LLC in California that must be taken into account before making this decision.
