A California LLC also offers the following advantages : Personal limited liability protection for all members, such that unless a member personally guarantees a debt or obligation, or fails to form or maintain the LLC properly, the member may not be held personally liable for the LLC’s debts and obligations.
An LLC is formed in California by filing Articles of Organization with the California Secretary of State and paying a $70 filing fee. Most businesses must also pay an $800 franchise tax. In addition, within 90 days of filing the Articles of Organization, the LLC must file a Statement of Information and pay a $20 fee.
Every LLC that is doing business or organized in California must pay an annual tax of $800 . This yearly tax will be due, even if you are not conducting business, until you cancel your LLC . You have until the 15th day of the 4th month from the date you file with the SOS to pay your first – year annual tax .
Due to the multitude of tax disadvantages that burden the California LLC , it is a very expensive means to operate a business. It is therefore typically in the owners best interest to form a corporation, rather than a LLC , unless the entity is being formed to hold real estate.
Pick the State Where You Want to Organize the LLC . Naming the LLC . File the LLC Articles of Organization. Prepare the LLC Operating Agreement. Analyze the Issues of Raising Money from Investors. Obtain an Employer Identification Number. Obtain the Necessary Business Licenses. Set Up an LLC Bank Account.
Key takeaway: Having your LLC taxed as an S corporation can save you money on self-employment taxes. However, you will have to file an individual S – corp tax return, which means paying your CPA to file an additional form. An S – corp is also less structurally flexible than an LLC .
You need a bank account for business if you operate under a doing business as (DBA) name. If you operate as a limited liability company ( LLC ) or a corporation, you must open a separate business account . Sole proprietorships and partnerships without DBAs are not legally required to open a business bank account .
An LLC is often an appropriate choice for small businesses because it offers reasonable liability protection with a minimal amount of paperwork and regulatory burden. Consider the pros and cons of each structure — and if you aren’t sure, it’s best to start with a simpler sole proprietorship or partnership structure.
Under California law, LLCs cannot be formed to provide professional services. Professional services include any service that requires a professional state license . If you don’t know whether your service requires a state license , see the California Department of Consumer Affairs website.
The best way to avoid paying back-to-back $800 franchise tax is to not let your California LLC go into existence at the end of the year.
The California Franchise Tax Board imposes a penalty if you do not pay the total amount due shown on your tax return by the original due date. The penalty is 5 percent of the unpaid tax (underpayment), plus 0.5 percent of the unpaid tax for each month or part of a month it remains unpaid (monthly).
When you do not pay your minimum LLC tax of $800 the FTB will charge you a penalty. Eventually, if you do not pay the tax your LLC will be suspended. The FTB will continue to charge you the $800 fee until the LLC is dissolved.
Three easy options: If you’re solo, and low liability, go the sole proprietor route to avoid the $800 CA biz tax . If you’re not solo, or really need the LLC personal liability protection, register your LLC in Wyoming. Is your liability low, but not so low that you want to risk being ‘naked’ in litigious California ?
If you are one of the many Californians wishing to avoid California income tax , there are two basic rules that you have to keep in mind. The first is that a resident pays California tax on their worldwide income. For instance, you are a resident of California and you own part of an LLC outside of the state.
State Business Tax By default, LLCs themselves do not pay federal income tax , only their members do. California imposes an $800 annual minimum franchise tax on typical LLCs (those not electing to be taxed as corporations). The tax and fee are payable to the California Franchise Tax Board (FTB).