A common business structure that combines the liability protection of a corporation with the tax flexibility of a partnership is an LLC, or limited liability company. On the other hand, a S corporation is a form of corporation that is subject to Internal Revenue Code Subchapter S taxation. It provides the same liability protection as a typical corporation but also has the advantage of pass-through taxes, which transfers business profits and losses to shareholders’ individual tax returns.
In California, an LLC can be a S corp, so the answer to the question is yes. Choosing to be taxed as a S corporation requires an LLC to submit Form 2553 to the IRS. Prior to make the choice, the LLC must, however, comply with a number of eligibility standards. The LLC may have up to 100 shareholders, all of whom must be either U.S. citizens or residents and be either persons or eligible entities, such as trusts or estates. Additionally, the LLC may not have more than 25% of its income from passive sources and may only have one class of stock.
Now that everything is cleared up, the answer to the question of whether a single-member LLC can be taxed as a S corp is no. A single-member LLC is taxed as a sole proprietorship and is viewed by the IRS as a disregarded entity. As a result, it is not eligible to choose S corporation taxation. However, if a single-member LLC satisfies the conditions, it may decide to be taxed as a C corporation.
Now let’s talk about the reason the California LLC cost is so expensive. In California, LLCs are subject to an annual tax known as the LLC tax, which must be paid whether or not the LLC generates any money. The current LLC tax rate is $800 annually, which is a lot more expensive than in several other states. The state levies this fee in order to make money and keep the LLC active. Penalties and eventual LLC dissolution may follow nonpayment of the LLC tax.
Finally, a person may inquire as to whether they are required to pay the $800 California LLC cost annually. The answer is that in order to keep an LLC functioning in California, the LLC tax must be paid annually. The annual LLC tax is applicable even if the LLC does not generate any revenue or engage in any activity within the state. It is crucial that new LLC owners in California are aware of this charge and account for it in their budget for the company.
In California, an LLC can be a S corp if it satisfies specific eligibility conditions and submits the required paperwork to the IRS. A one-member LLC, however, cannot be taxed as a S corporation. The annual California LLC fee must be paid to avoid fines and the possibility of the LLC being dissolved. The fee is high in order to support the state’s budget and keep the LLC in good standing. The annual tax return for California LLCs is the Form 568, which also contains various fees and the LLC tax.