Doing business as a Limited Liability Company (LLC) in California can be a costly endeavor. The state requires that LLCs pay an annual tax, even if they are not actively conducting business. This article will explain the requirements for paying the annual tax, as well as the potential tax liabilities that LLCs may face. The California Uniform Revised Limited Liability Company Act (California Company Code Sections 17701.01 to 17713.1) authorizes the formation of LLCs in California.
The Franchise Tax Board (200165 CA4th 1207) has limited its share of LLC income to that which is fairly allocated to California businesses. 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. The annual tax must be paid by the 15th of the fourth month from the date you file with the Secretary of State (SOS). 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.
Total income derived from or attributable to California means gross income, as defined in Section 24271 of Revenue and Taxation Code (R&TC), plus the cost of goods sold, paid for, or incurred in connection with the taxpayer's trade or business. 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. LLCs classified as corporations should refer to FTB Publication 1060, Guide for Corporations Starting Business in California. 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. Rachel uses a California address for LLC tax returns and a California accountant to prepare LLC tax returns.
The only exceptions are for LLCs that are wholly owned by deployed members of the military or for S corporations, and require that the company have no business activity for the specified period. In conclusion, it is important to remember that you must pay your annual tax until you cancel your LLC, even if you are not conducting business. Additionally, there are many potential tax liabilities that you may face when doing business as an LLC in California. It is important to be aware of these potential liabilities and to consult with a qualified accountant or lawyer before making any decisions.