What is the California Franchise Tax?

When you register an LLC in California, you will have tax obligations. One of these is the California Franchise Tax, an annual payment due yearly. It is important to consider the costs of this tax because for some businesses it might not be worth forming an LLC. After all, the franchise tax is so expensive.

What is the California Franchise Tax?

All LLCs have to pay an annual tax of $800 to the state for operating an LLC business in the state. It doesn’t matter whether the business is located in the state or not it is about the registration.

And this is not the only tax to pay in the state. Other taxes in the state would need to be paid. Therefore, businesses that are low on revenue or profits might find that California franchise tax erodes their income and makes the business unprofitable.

When is California Franchise Tax Due?

For LLCs, the first annual California franchise tax is due on the 15th day of the fourth month after the date the business has been filed with the secretary of state. After this date, the annual tax is due on the 15th day of the fourth month of the taxable year. This is generally April 15th.

Are There Exemptions to the California Annual Franchise?

There are some exceptions for businesses paying the California Annual franchise tax. One of these is that those newly incorporated corporations do not need to pay the minimum franchise tax during their first year of operation.

Those businesses which have operated less than 15 days in the tax year will also be an exception from paying the tax in the first year. However, they will pay in the first full tax year.

Generally, most entities need to pay the franchise tax of any business type.

However, there is always the chance to check with the California Franchise Tax Board. This government board is responsible for the amount a business owes, the minimum amounts, applicable deadlines, filing procedures, and what exemptions your business might qualify for.

Final Word: What is the California Franchise Tax?

The California Franchise tax is a tax levied against most businesses. While there are some exemptions, most do not get any exemptions, so it is best to factor these costs into your business and ensure that you have the right business for an LLC.