How to Pay LLC Tax in California

If you run a Limited Liability Company (LLC) in California, you're familiar with its unique tax requirements, primarily the $800 annual franchise tax. This fee is due regardless of your LLC's income or activity, and it's just one piece of your overall state tax obligation. This guide will walk you through exactly how to calculate and pay your California LLC taxes, covering the key forms, deadlines, and common pitfalls to avoid.

Understanding California's LLC Taxes: Franchise Tax vs. LLC Fee

Unlike some other states, California imposes a two-part tax structure on LLCs. It's important to understand both components to calculate your total liability accurately.

1. The $800 Annual Franchise Tax

Every LLC that is registered, organized, or doing business in California must pay an $800 annual franchise tax. Think of it as a prepayment for the privilege of operating as an LLC in the state. This tax is due every year, starting with your first year of formation.

• When is it due? For new LLCs, the first $800 payment is due by the 15th day of the fourth month after the LLC is registered with the California Secretary of State. For established LLCs, the annual tax is due by April 15th each year (if filing on a calendar year basis).
• Does it depend on income? No. Even if your LLC had zero income or was inactive for the entire year, you still owe the $800 franchise tax. The only exception to this $800 franchise tax is for LLCs in their first taxable year of business that choose to be taxed as S or C corps.

The form associated with this payment is often Form 3522, LLC Tax Voucher, especially for that initial payment.

2. The LLC Gross Receipts Fee

In addition to the annual tax, your LLC may also owe a fee based on its total gross receipts sourced to California. This is an amount on top of the $800. The fee is tiered—the more revenue your business generates, the higher the fee becomes. It’s calculated based on total annual revenue, not profit.

Here is the California LLC fee schedule for 2023:

• $0 to $249,999 in total CA income: $0 fee
• $250,000 to $499,999 in total CA income: $900 fee
• $500,000 to $999,999 in total CA income: $2,500 fee
• $1,000,000 to $4,999,999 in total CA income: $6,000 fee
• $5,000,000 or more in total CA income: $11,790 fee

Even if your LLC's gross receipts fall below $250,000 (meaning you have a $0 LLC fee), you are still required to pay the $800 annual franchise tax and file all the necessary returns.

Key Forms You'll Need to File

Paying your taxes correctly involves submitting the right paperwork to the California Franchise Tax Board (FTB). Here are the primary forms every LLC owner needs to know.

Form 568: Limited Liability Company Return of Income

This is the main state tax return for all LLCs in California. You must file Form 568 annually, regardless of your business activity or income level. This form serves several functions:

• It reports the LLC's income, deductions, and credits for the year.
• It's used to officially calculate and report the LLC fee based on your total California gross revenue.
• It’s where you report and pay any remaining tax liabilities if a PTE election is made.

For Single-Member LLCs (SMLLCs): Even though a SMLLC is a "disregarded entity" for federal tax purposes (meaning its profits and losses are usually reported on your personal Schedule C), California still requires you to file a separate Form 568. You will report your income and pay the $800 franchise tax and any applicable LLC fee with this form.

Form 3522: LLC Tax Voucher

As mentioned earlier, Form 3522 is a payment voucher used to submit your $800 annual franchise tax. It’s most commonly used for making the first-year tax payment but can also be used for subsequent annual payments if you are not submitting payment electronically or with another return.

Schedule K-1 (Form 568): Member's Share of Income, Deductions, Credits, etc.

For multi-member LLCs treated as partnerships, you must prepare and issue a Schedule K-1 for each member. This form breaks down each member's share of the LLC's profits, losses, and credits. Members then use the information from their K-1 to report the LLC income on their individual California personal income tax returns (Form 540).

A Step-by-Step Guide to Paying Your California LLC Taxes

Paying your LLC taxes is easier than you may think with four simple steps:

1. Gather Your Financial Records
2. Complete the Required Forms
3. Choose a Payment Method
4. Verify Forms and Payment Submittal

Navigating the process can be straightforward if you follow a clear plan. Here’s how to calculate, file, and pay what you owe.

1. Gather Your Financial Records

Before you begin any paperwork, you need a clear picture of your LLC’s finances for the taxable year. Pull together your income statement (also called a profit and loss statement), which should clearly show your total gross receipts. Remember, for the LLC fee calculation, you need your total revenue, not your net profit after expenses. If you use accounting tax software such as QuickBooks or Xero, all the reports and other information you need will reside within your tax software.

2. Complete the Required Forms

Once your financials are in order, it's time to fill out the necessary tax forms. At a minimum, every California LLC must file Form 568. Carefully report your business's total income from all sources to identify your LLC fee bracket on Part II of this form. Multi-member LLCs will also need to generate a Schedule K-1 (Form 568) for each member.

3. Choose Your Payment Method

The California FTB offers several ways to pay your LLC taxes. Choose the one that is most convenient for you.

• Online: The fastest and most secure method is FTB Web Pay. You can authorize a direct debit from your bank account for free. It gives you an instant confirmation that your payment has been received, which is great for peace of mind.
• By Mail: If you prefer to pay by check or money order, you must mail it with the appropriate payment voucher (like Form 3522 or the voucher included with Form 568). Make sure to write your California LLC’s Secretary of State (SOS) file number and the tax year on your check to ensure it’s credited properly.
• Credit Card: You can pay with a credit card through third-party services linked on the FTB website. Be aware that these services charge a convenience fee (typically a percentage of your payment).

4. Don't Forget to File

Making a payment and filing your return are two distinct steps, and you must complete both. Once paid, ensure your Form 568 is filed electronically or mailed to the FTB by the deadline. Missing the filing deadline can result in penalties, even if you paid the tax on time. Most professional tax preparers provide you with a form e-file compliance which will notify you once all of your forms have been accepted by the tax authorities as filed.

Important Deadlines You Can’t Afford to Miss

Meeting deadlines is paramount to avoiding costly penalties and interest. Here are the key dates to keep on your calendar for a typical calendar-year LLC:

• April 15th: The $800 annual franchise tax is due. This is also the filing deadline for single-member LLCs. If your tax due date falls on the weekend, your filing deadline is automatically extended to the next business day.
• March 15th: The filing deadline for multi-member LLCs is actually one month sooner—by March 15th—since multi-member LLCs follow the partnership filing deadlines. However, you still have until April 15th to remit any taxes due.

What happens if you're late? The FTB can impose a late-filing penalty, a late-payment penalty, and will charge daily compounding interest on the unpaid balance. Moreover, failing to pay taxes and file returns can lead to your LLC being "FTB suspended," meaning you legally lose the rights and privileges of operating an LLC in California until your accounts are settled.

Common Errors and How to Avoid Them

Many LLC owners make the same correctable mistakes. Being aware of them can save you time, money, and stress.

1. Confusing Gross Revenue with Taxable Income: An LLC owner may see that they netted $60,000 for the year, forgetting their gross revenue was $280,000. For the California LLC fee, that $280,000 figure is what counts. This LLC would be responsible to pay an LLC fee of $900 in addition to the franchise tax.

2. Missing the First-Year Tax Payment: When an LLC is formed on September 1st, its first $800 tax is due by January 15th of the following year (the 15th day of the 4th month). New business owners are often focused on operations and can easily miss this initial, non-standard deadline.

3. Forgetting to File When No Fee is Due: Let's say a tutoring LLC generated $100,000 in revenue. Its LLC fee would be $0. However, the owner still must timely file a Form 568 and pay the $800 franchise tax. Failure to file can trigger penalties as if the owners had not filed at all.

Final Thoughts

Complying with California's LLC tax rules requires understanding the two-part system: the fixed $800 annual tax and the variable LLC fee based on gross receipts. By using Form 568 correctly, tracking deadlines, and meticulously calculating your revenue, you can confidently meet your obligations and avoid unnecessary penalties.

Keeping track of California’s specific forms and thresholds, like the gross receipts tiers for the LLC fee, can be tedious. Instead of sifting through Franchise Tax Board documents, you can get instant, citation-backed answers with Feather AI. Ask whatever questions you need an answer to and receive accurate information including the specific tax code that is applicable to your question. Getting answers will not be easier.