How Tax-Friendly is California for LLCs

California imposes taxes for small businesses – learn how much an LLC should pay.

As a business owner, one of the decisions you will need to make is where to form your LLC. An LLC is a business structure that is recognized by all states, but things like requested documents or regulations can differ depending on the state you have selected.

TRUiC can provide you with all the necessary information when forming an LLC in California in their easy to understand guide. If you are interested in finding out how tax friendly this state actually is for LLCs check out the below key points we’ve highlighted. 

How are LLCs Taxed in California?

Each state classifies LLCs differently for tax purposes, therefore the amount of money each company is required to pay depends on the state they have selected to form their business. California might be well known for the many large world-renowned companies registered there but the state also imposes taxes and has business regulations for small businesses.

State income tax in California depends on the number of members an LLC has. If it has one member, it is classified as a sole proprietorship, and if it has more than one it is treated as a partnership. All LLCs, whether they earn income or not are obligated to pay an annual franchise tax of $800

On top of the annual franchise tax there is an additional tax which varies depending on revenue levels:

  • $900 for gross incomes between $250,000 and $499,999
  • $2,500 for gross incomes between $500,000 and $999,999
  • $6,000 for gross incomes between $1 million and $4,999,999 and
  • $11,790 for gross incomes of $5 million or greater.

What are the Other Taxes an LLC Business Owner Should Pay?

If you have formed an LLC in California, depending on your business you can be taxed for other purposes.

Sales Tax

You will be taxed if your company is registered to sell physical products.

Employer Taxes

If you have formed your LLC in California and you have employees, there is an Unemployment Insurance Tax and Employee Withholding Tax that you should pay. In order to do that, you need to register on the California Employee Development Department website.

Annual Franchise Tax

In California, all LLCs must pay an annual franchise tax of $800.

What Other Regulations should an Owner of an LLC Business Pay Attention to?

It is very important to comply with all state laws and requirements when forming an LLC in California. That means that you should obtain all permits and licenses, fill in the relevant papers, and pay taxes.

California requires a biennial report to be filed for all LLCs. You should seriously consider this when forming an LLC as you could pay fines or even face automatic dissolution if you miss the deadline. If you want peace of mind, you can select a registered agent service to help you keep track of all state filings and do all of the work for you. 

When forming an LLC in California it’s very important to focus on how to grow your business and entrust all administrative tasks to a specialized service or use automated software. You can find many formation professionals in California that offer accounting, compliance advice and support. They can help you not only with tax consultation but also help keep your books in order and track your financial expenses and revenues.

For support with payroll, you can use a payroll service that will help you with employee tax withholdings and filings for your team.

Should I Hire a Service to help me With Taxes?

Depending on your business needs and your knowledge about state requirements and administrative tasks, it would be a good idea to get additional help for tax purposes. 

There are special services with trained and experienced professionals that can help you understand how the tax system works and what your obligations are toward the state of California. 

Apart from accounting offices, some companies which offer formation services can also be a good choice and help you with everything you need to form an LLC but also give you advice on tax matters. 

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