If you want to start and run a California limited liability company (LLC), you'll need to prepare and file various documents with the state. This article covers the most important ongoing reporting and state tax filing requirements for California LLCs.
The State of California requires you to file an initial information statement within 90 days of filing your articles of organization. To complete the statement, you'll need to provide much of the same information needed for the articles of organization, along with the names and addresses of either your LLC's managers or all LLC members, and a few other pieces of information. The statement can be completed online at the SOS website. You can alsodownload a blank information statement form (Form LLC-12) that you can complete on computer, print out, sign, and file by mail or hand delivery. There is a $20 fee to file the initial statement.
Thereafter, additional statements of information are due every two years by the end of the anniversary month of the filing of your LLC's articles of organization. More specifically, there is a filing period that runs for the 6 months prior to the final due date. For example, if you filed your articles of organization on September 15 of an odd-numbered year, you should file statements of information every other year at some point between April 1 and September 30 of each subsequent odd-numbered year. As with the initial report, subsequent reports can be completed online or you can download a blank form and file by mail or hand delivery. The current filing fee for each biennial information statement is $20.
When it comes to income taxes, most LLCs are so-called pass-through tax entities. In other words, the responsibility for paying federal income taxes passes through the LLC itself and falls on the individual LLC members. By default, LLCs themselves do not pay federal income tax, only their members do.
California imposes an $800 annual tax on typical LLCs (those not electing to be taxed as corporations). Be aware that there are special rules regarding payment of an LLC's tax for its first year in existence. In addition to the annual $800 tax, if your LLC's annual gross revenues exceed $250,000, you will have to pay an additional annual fee which is based on LLC income from California sources and currently ranges from a minimum fee of $900 to a maximum fee of $11,790. The tax and fee are payable to the California Franchise Tax Board (FTB). For more information about the tax and fee, including guidance on which forms to use for your particular business, check theFTB website.
In some cases, the owners of an LLC choose to have their business treated like a corporation for tax purposes. This choice is made by filing IRS Form 2553 with the IRS. (See the IRS website for the form.) The State of California, like almost every other state, taxes corporation income. California calls this a franchise tax. In California, the franchise tax currently is a flat 8.84% of net income from business transacted in California. The tax is payable to the FTB. If you have chosen to have your LLC taxed as a corporation you will need to pay this tax. Use the state's corporation income tax return (Form 100) to pay the tax. For more details, check Nolo’s article, 50-State Guide to Business Income Tax, or the FTB website.
Does your LLC have employees? If so, you'll need to pay employer taxes. Some of these taxes are paid to the federal government (the IRS) and are not covered here. (But note that federal employer tax obligations start with obtaining a federal employer identification number (EIN).) However, California employers also must pay taxes to the state.
First, you'll need to withhold and pay employee income taxes to the California Employment Development Department (EDD). Begin by registering your business with the EDD either online or using the appropriate version of Form DE-1. Once you've registered, you'll need to file withholding taxes on a quarterly basis using Forms DE-88ALL and DE-9. For more information, including regarding online filings, check the EDD website.
In addition, you'll probably need to register to pay state unemployment insurance (UI) taxes. Like income tax withholding, these taxes are handled throughthe EDD, and as with tax withholding you can register for UI taxesonline or by using the appropriate version of Form DE-1. Then, each quarter, use Forms DE-9 and DE-9C to report on wages and pay the UI taxes. For more information, including regarding online filings, check the EDD website.
If your LLC will sell goods to customers in California, you will need to collect and pay sales tax. This means you'll have to register for this purpose with California State Board of Equalization (BOE) and then make periodic sales tax payments for goods sold. You can register online at the BOE website or in person at a BOE field office. After you've registered, you'll receive a seller's permit. Then, on a periodic basis—monthly , quarterly, or annually—you must submit sales tax returns to the DOR. You must complete your sales tax returns online. For more information, check the BOE website.
If you will be doing business in states other than California, you may need to register your LLC in some or all of those states. Whether you're required to register will depend on the specific states involved: each state has its own rules for what constitutes doing business and whether registration is necessary. Often activities such as having a physical presence (a business location) in a state, hiring employees in a state, or soliciting business in a state (such as by telephone, print ads, mail, or the Internet) will be considered doing business for registration purposes. Registration usually involves obtaining a certificate of authority or similar document.
For more information on the requirements for forming and operating an LLC in California, see Nolo’s article, 50-State Guide to Forming an LLC, and other articles on LLCs in the LLC section of the Nolo website.