Choosing between starting a corporation, partnership, or LLC is very difficult. Each has its own advantages and disadvantages. Most self-help guides available only focus on Federal tax consequences. As a result, I see new clients each year that are very confused about why California is sending them a tax bill for having an LLC. This guide will explain California’s rules a bit more.<\/p>\n
For Federal tax purposes, a Single Member LLC is treated as a part of its owner\u2019s taxes. This means that Single Member LLC\u2019s are (usually) reported on Schedule C or E of the Owner’s individual tax return, Form 1040. These LLC\u2019s don\u2019t file separate federal tax returns. Most states follow the same treatment for State tax returns. One notable exception is California.<\/p>\n
Single Member LLC\u2019s doing business\u00a0in California must pay the $800 Franchise Tax Fee, and potentially a $900 or greater LLC fee, depending on the Gross Revenues (the amount of cash the LLC received for sales before expenses). In addition, Single Member LLC\u2019s must also file an information return with the Franchise Tax Board.<\/p>\n
Many people assume that their LLC is exempt from these taxes\u00a0if it was formed in another state such as Nevada or Delaware.\u00a0There is an exemption for LLC’s under very specific circumstances. If your LLC meets any of the following criteria, it is not exempt from California taxes:<\/p>\n