Below, you will find a complete overview of the LLC tax filing requirements at the federal level and in the State of California. Consult with a local tax pro

• Federal Return – Complete Schedule C, E, or Fas appropriate.

• California Returns -

o Form 568 - Complete the following pages of the CA Form 568 LLC Return of Income using income, deductions, credits, etc., from       the member’s 1040 Schedule C, E or F:

o Form 3522 – Complete the voucher and pay the $800 minimum annual LLC tax. For calendar year taxpayers the tax is due on or before April 15th of the LLC’s tax year (not the following year).

o Form 3536 – Complete the voucher and pay the current tax year’s estimated LLC fee by the 15th day of the 6th month of the LLC’s current tax year (applies only if total California income is $250,000 or more).

• Federal Return – Prepare a Form 1065 Partnership Return

• California Returns -

o Form 568 - Complete the CA Form 568 LLC Return of Income using the income, deductions, credits, etc. from the corresponding Federal Form 1065, adjusted for California law differences:

o Form 3522 – Complete the voucher and pay the $800 minimum annual LLC tax. For calendar year taxpayers the tax is due on or before the 15th day of the fourth month of the LLC’s tax year (not the following year).

o Form 3536 – Complete the voucher and pay the current tax year’s estimated LLC fee by the 15th day of the 6th month of the LLC’s current tax year (applies only if total California income is $250,000 or more).

• Federal Return – Prepare a Form 1120 or 1120S

• California Returns - Prepare California Form 100

    • Due 15th day of the 4th month after the close of the LLC’s taxable year.     

    •  Taxed at the corporate tax rate of 8.84 percent and subject to a minimum tax of $800.

o Form 3522 – Complete the voucher and pay the $800 minimum annual LLC tax. For calendar year taxpayers the tax is due on or before the 15th day of the fourth month of the LLC’s tax year (not the following year).

For taxable years beginning on or after January 1, 2014, California law requires any business entity that files an original or amended tax return that is prepared using tax preparation software to electronically file (e-file) their tax return with the FTB. Thus, an LLC must file their Form 568 or Form 100 electronically. For more information go to ftb.ca.gov and search for “business efile.”

California Code provisions allow limited liability companies (LLCs) to cancel and not be required to pay the first-year annual tax if they meet certain conditions (Corporations Code Section 17350.5 and California Revenue and Taxation Code (R&TC) Section 17941(e)).

A domestic limited liability company (LLC) may use the Secretary of State’s form SOS Form LLC-4/8, Limited Liability Company Short Form Certificate of Cancellation, to cancel (ceasing the LLC’s rights, powers, and privileges) if it is filed within twelve months from the date the Articles of Organization were filed with the SOS, and it meets the following requirements:

The short form cancellation is operative for LLC’s that filed articles of organization.

The LLC annual tax is not required for the first taxable year if an LLC filed the short form cancellation with SOS and is classified as a partnership or disregarded entity. If an LLC files SOS Form LLC-4/7, Limited Liability Company Certificate of Cancellation, or is involved in a merger or conversion, it does not qualify for LLC short form cancellation even if it meets all of the requirements.

Currently, the minimum tax is not required for the first taxable year only if the LLC is classified as a corporation. The FTB can only refund the annual tax or fee that was paid on or after the date the LLC filed the SOS Form LLC-4/8, Limited Liability Company Short Form Certificate of Cancellation, with the SOS.

For additional information related to closing a CA business entity visit:

https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/may-2018/how-to-close-a-california-business-entity.html

https://www.ftb.ca.gov/help/business/index.html

If the LLC elects to be taxed as a corporation for federal tax purposes, the LLC must file California Form 100-ES and enter the California corporation number, federal employer identification number (FEIN), and California Secretary of State file number (CA SOS), if applicable, in the space provided. The FTB will assign an identification number upon receipt of the first estimated tax payment, tax payment, or the first tax return. The LLC will be subject to the applicable provisions of the Corporation Tax Law and should be considered a corporation for purpose of all instructions unless otherwise indicated.

California taxpayers are required to remit payments electronically once they make an estimate or extension payment exceeding $20,000 or file an original tax return with a total tax liability over $80,000, including the pass-through entity (PTE) elective tax for an S corporation or LLC classified as an S corporation. Once the threshold is met, all subsequent payments regardless of amount, tax type, or taxable year must be made electronically. Failure by a corporation to comply with California’s e-pay requirement will result in a 10% penalty, while the mandatory e-pay penalty for individuals who don’t pay electronically is 1% of the amount paid.

If an S corporation (or LLC classified as an S Corp) had a mandatory e-pay requirement and received a penalty for paying their PTE elective tax by check, they may qualify for penalty relief on a case-by-case basis. For the penalty to be abated, FTB needs to determine that reasonable cause exists. See the FTB web site S corporation pass-through entity elective tax and mandatory e-pay requirement | FTB.ca.gov for further information on relief of this penalty.

On March 8, 2002, the FTB issued FTB Notice 2022-1 which allowed taxpayers, for the 2021 taxable year, who files Form 565 or Form 568 to report its partners' or members' capital accounts on Schedule K-1 (565) or Schedule K-1 (568) using the tax basis method as determined under federal law, as reported on Schedule K-1 (Form 1065), or by using the tax basis method as determined under California law. The Notice stated that beginning taxable year 2022 and for every taxable year thereafter, the FTB will require a taxpayer who files Form 565 or Form 568 to report its partners' or members' capital accounts on the Schedule K-1 (565) and the Schedule K-1 (568) using the tax basis method as determined under California law.

The Franchise Tax Board has become aware that certain persons required to file Schedule K-1 (565) and Schedule K-1 (568) may be unable to timely comply with the requirement to report partner capital on the tax basis method as calculated under California law for 2022.

PROCEDURE: For taxable years 2021 and 2022, the FTB will permit a taxpayer who files Form 565 or Form 568 to report its partners' or members' capital accounts on Schedule K-1 (565) or Schedule K-1 (568) using the tax basis method as determined under federal law, as reported on Schedule K-1 (Form 1065), or by using the tax basis method as determined under California law. However, this is limited solely to the capital account analysis on Schedule K-1 (565) and Schedule K-1 (568) for the taxable years 2021 and 2022, and does not allow taxpayers to use their federal tax basis in lieu of their California tax basis for any other purpose, including reporting or determining their California tax liability.

Beginning taxable year 2023, and for every taxable year thereafter, the FTB will require a taxpayer who files Form 565 or Form 568 to report its partners' or members' capital accounts on the Schedule K-1 (565) and the Schedule K-1 (568) using the tax basis method as determined under California law. FTB's 2022 Form 565 and 568 instructions contain methods to compute the beginning tax basis capital account analysis balance for those filing these forms who did not previously calculate their tax basis capital account on Schedule K-1 (565) and Schedule K-1 (568) under California law including methods similar to those the IRS permitted in its 2020 Form 1065 instructions.

PRIOR GUIDANCE: This Notice (FTB Notice 2023-01) supersedes and replaces FTB Notice 2022-1.