An LLC is a well-liked business form in California if you own a company there because of its adaptability and liability protection. But forming an LLC also has some responsibilities, such as paying the $800 annual California LLC tax. What occurs, though, if you fail to pay this tax?
First off, it’s crucial to understand that this is a flat cost that all California LLCs must pay regardless of their income, not a tax on earnings. Penalties, interest, and even the suspension or abolition of your LLC may follow nonpayment of this tax.
Failure to pay the California LLC tax can result in hefty fines. A 10% penalty will be added to the $800 price if you are only a few months late. The penalty goes up to 20% after six months, and to 40% after a year. In addition, until the tax is fully paid, interest is accumulated on the unpaid portion at a rate of 0.5% per month.
That’s not all, though. The California Franchise Tax Board (FTB) has the authority to suspend your LLC’s authority and prevent you from operating legally in the state if you continue to ignore paying the LLC tax. This suspension could continue until you make the necessary tax, penalty, and interest payments. In exceptional circumstances, the FTB may even dissolve your LLC, in which case you would have to start the company creation procedure from scratch.
What if your LLC failed to generate any revenue in California? Have you paid the $800 tax yet? Sadly, the reply is in the affirmative. You must still pay the annual tax even if your LLC generated no earnings. Only newly created LLCs that haven’t yet done any business in California are exempt from this rule.
Positively, LLC fees and costs may qualify for tax deductions. You can write off any costs you spend to create your LLC, such as filing fees or legal charges, as start-up expenses. You can also deduct recurring costs like office rent, website hosting fees, and yearly state fees. However, because the $800 California LLC tax is seen as a flat fee rather than a business expense, it is not deductible.
Therefore, unless your LLC was established after December 17, 2020 and has not yet carried on business in California, the answer to the question “Do you have to pay the $800 California LLC fee the first year in 2021?” is yes.
As a result of not paying the $800 California LLC tax, your LLC may be suspended or dissolved, in addition to facing penalties and interest. To prevent any bad effects, paying this tax needs to be a top priority. Although the cost is not tax deductible, you can write off other LLC fees and expenses on your business tax return.
Yes, there can only be one member of a California LLC. In fact, single-member LLCs are becoming more and more common in California and other jurisdictions because of their adaptability and simplicity of administration. The fact that single-member LLCs are nonetheless subject to the same taxes and rules as multi-member LLCs should not be overlooked.