Registering an LLC in California: Tax Obligations

When you establish a Limited Liability Company (LLC) in California, you’re entering into a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. However, alongside these benefits come specific tax obligations unique to the state.

State Tax Obligations for Registering an LLC in California

Registering an LLC in California requires several administrative steps. Beyond the foundational elements, like drafting an operating agreement and filing the Articles of Organization, there are specific state tax obligations you must address.

What Are the Required Forms?

When establishing a Limited Liability Company in California, there are two primary documents you’ll be intimately involved with: the Articles of Organization and the Statement of Information.

The Articles of Organization are the bedrock documents that legally usher your LLC into existence in the state. Through this document, the state acknowledges and legitimizes your business entity. Within the Articles, you’re expected to specify the name of the LLC — ensuring it stands distinct from other registered entities in California and includes “Limited Liability Company” or its abbreviations.

Additionally, the document should capture the primary business address, the explicit (or often general) purpose of the LLC, the name and address of the agent designated for service of process (the individual or entity designated to receive legal documents on the LLC’s behalf), and the management structure, indicating whether the LLC’s oversight will be member-managed or by designated managers.

Once these details are thoroughly filled out, the Articles of Organization need to be filed with the California Secretary of State. This can be done through mail or online, and it’s essential not to forget the associated filing fee.

Subsequent to the Articles of Organization, there’s the Statement of Information. This document functions to keep the state updated about your LLC’s management structure and operations. It ensures that anyone seeking details about your LLC can access current information.

Typically, the Statement encompasses the names and addresses of the LLC’s officers and managers, a description of the business activities the LLC participates in, and details of the primary business location along with any other operational locations. Importantly, it also reaffirms the names and addresses of agents designated for service of process.

The initial Statement of Information is due relatively soon after the Articles, within 90 days of filing them, to be precise. After this initial submission, you are required to update the state biennially with this form. Like the Articles, the filing a Statement of Information can be done online or mailed directly to the California Secretary of State, and a filing fee is applicable.

Navigating the intricacies of these forms and ensuring accurate and timely submissions is critical for the smooth establishment and continued compliance of your LLC in California. If you have any questions about this process, a California lawyer can help.

Tax Amounts

Some of the tax amounts for an LLC in California are:

• An annual franchise tax of $800 which is due on the 15th day of the fourth month after the close of the year;
• An LLC fee that ranges from $0 to $11,790, depending on the total income of the LLC;
• FICA tax at 15.3% of taxable wages for employees;
• Sales tax and Nonconsenting Nonresident members’ tax which vary depending on the location of the LLC and the people involved.

How to Pay Your California State Tax Obligations?

There are different ways to pay your California state tax obligations, depending on the type of tax and the amount you owe. Some of the common methods are:

• Paying online through the Franchise Tax Board (FTB) website, where you can file your tax return, pay your franchise tax, and view your payment history.
• Paying by phone through the FTB Automated Telephone Payment System (ATPS), where you can use a credit card or a debit card to make a one-time or recurring payment.
• Paying by mail through the FTB Check Pay Service, where you can write a check or money order to the FTB and mail it to the address on your payment notice.
• Paying by electronic funds withdrawal (EFW) through your bank account, where you can set up a direct debit from your checking or savings account to pay your franchise tax.
• Paying by credit card through the FTB Credit Card Payment Service, where you can use a Visa, Mastercard, American Express, or Discover card to make a one-time or recurring payment.
• Setting up a payment plan through the FTB Online Payment System, where you can choose from different payment options and pay in monthly installments over 12 months.

You may also be required to pay electronically if you receive a letter from the FTB requesting that you do so. You can visit Mandatory e-Pay for more information.

What Happens if I Don’t Pay the $800 California LLC Tax?

If you don’t pay the $800 California LLC tax, you may face some serious consequences, such as:

• Late fees: The Franchise Tax Board will charge you a penalty of 5% of the unpaid tax amount for each month or part of a month that the tax is not paid. The maximum penalty is 25% of the unpaid tax amount.
• Suspension: The FTB will suspend your LLC’s registration and business activities until you pay the tax or file an application for reinstatement. You will also lose your LLC status and any benefits associated with it, such as liability protection and tax deductions.
• Dissolution: If you fail to pay the tax or file an application for reinstatement after being suspended, your LLC will be dissolved by the Secretary of State (SOS), and you will become personally liable for any outstanding tax liabilities. You will also lose your LLC status and any benefits associated with it, such as liability protection and tax deductions.

To avoid these consequences, you should pay your annual LLC tax on time and file Form 3522, the annual LLC Tax Voucher, with the FTB.

What Is the Penalty for Paying LLC Tax Late in California?

Late payment of the California LLC tax will subject you to a 5% monthly penalty of the unpaid tax amount, with a maximum penalty of 25%. Interest will also accrue on the unpaid amount.

How Do I Avoid the $800 Tax in California LLC?

Unfortunately, the $800 franchise tax is a minimum annual fee, and there isn’t a direct way to avoid it if you’re operating as an LLC in California. However, proper planning with a corporate attorney, understanding deductions, and structuring your business efficiently can help offset the burden.

Should I Contact an Attorney?

Absolutely. If you’re forming an LLC in California or have questions about your tax obligations, it’s crucial to seek guidance from a knowledgeable California lawyer. They can ensure you’re compliant with state requirements and help you navigate any potential pitfalls.

If you’re unsure where to find a reputable California corporate lawyer, LegalMatch can connect you with the right legal professional for your needs.

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