With any business, whether you’re operating an LLC or perhaps a corporation, the idea of taxation doesn’t come without many questions. In more recent developments in federal law and legislation, there has been an improvement in the way businesses can enjoy better tax benefits. Starting an LLC in California is relatively easy, as the Golden State does offer more convenience and ease of setup procedures.
If you had to ask any LLC owner in California about the taxation, they’ll share that although the state offers a market with lots of disposable income, tax in the area is still some of the highest in the U.S. Complying with state regulations is very straightforward, and will ensure that the formation process can be completed within a short amount of time.
What is the $800 LLC fee in California?
New LLC owners will be subdued to pay an annual tax of $800. It’s a mundane hurdle, as the state will require you to pay this fee on the 15th day of the fourth month after filing your LLC papers.
For example, you formed a new LLC and registered it with the Secretary of State on the 3rd of August 2020; this would mean that your LLC tax is due on November 15th, 2020.
Are there exceptions for paying the fee?
A limited amount of exceptions exist and apply if an LLC did not operate business in California during the tax year and/or their tax year was 15 days or fewer. To become exempt, owners will need to complete and submit a Short Form Cancellation (SOS Form LLC-4/8) with the secretary of state.
How do you form an LLC in California?
The compliance for forming an LLC in the state is not that complex, and if you’re interested in reading a detailed step-by-step guide, you can read more on our website.
Step 1
Form a name; it can be a fictitious name, for your LLC.
Step 2
Assign a California Agent of Process
Step 3
File Articles of Organization
Step 4
Set Up an LLC operating Agreement
Step 5
Register for an Employer Identification Number (EIN) with the IRS.
What are the requirements to form an LLC?
Although the above mentioned is only a brief overview of the steps one should complete before filing your LLC registration, there are some other requirements that the state needs new LLC owners to comply with.
One will need to obtain a business license and permit, as this is compulsory with both state and federal government. Furthermore, if you’re going to be selling a physical product, you might also need to register for a sellers permit through the California Board of Equalization Services.
Who can form an LLC in California?
In most instances, there aren’t many limitations on who can start and operate an LLC, as it helps owners with the protection and liability of personal assets. An LLC is a legally binding business structure, which creates a ‘Corporate Veil’, protecting personal goods in the event of bankruptcy, lawsuits, or any other legal actions.
Is there another taxation or filing process needed to be completed within the first year of operations?
Yes, California state regulations mandate that owners pay an annual tax fee of $800, register for Unemployment Insurance Tax (if you have employees within the state), and requires the filing of a biennial report. If owners fail to submit a biennial report, they could face fines and even automatic dissolution.
What is the franchise fee?
The franchise fee doesn’t necessarily mean you need to pay for a specific franchise, as that will fall under different legislation, but this is the $800 annual tax fee paid within the first year of conducting business. This needs to be paid, even if your LLC didn’t conduct any business within the first annual tax year.
