Whether you must register your LLC is something you may be thinking if you plan to launch a business in California. The short answer is that yes, regardless of its legal makeup, every business operating in California is required to register with the Secretary of State. This is true whether you’re starting a corporation, limited liability company (LLC), partnership, or sole proprietorship.
What makes an LLC superior to a sole proprietorship, then? Both forms provide liability protection for the owner(s), but an LLC offers more formalization and a clearer line between assets belonging to the firm and the owner(s). An LLC also offers a more professional image and structure, which may make it more appealing to lenders and investors.
What if your LLC isn’t making money? You must still submit tax returns to the state of California. In fact, you still need to submit a “zero-income” tax return even if your LLC didn’t do any business during the tax year. Keep track of your tax obligations as failing to file might result in fines and penalties.
Maintaining an LLC in California entails continuing expenses in addition to tax requirements. The state mandates that LLCs submit an annual statement of information along with a $20 filing fee. LLCs must also pay an annual tax fee of $800 and submit a biannual report to the California Franchise Tax Board. When considering incorporating an LLC, it’s crucial to account for these charges because they can mount up.
The tax rate for 2021 must be considered if you’re thinking about using a S company (S corp) as your legal structure rather than an LLC. S corporations are pass-through businesses, which means that the owners are taxed at their personal income tax rates on the company’s income. California’s tax rate is 8.84%, compared to the federal rate of 21% for S corporations. As a result, S corporations in California will pay a total tax rate of 29.84%.
In conclusion, it’s critical to register your LLC with the Secretary of State if you’re beginning a business in California, submit taxes even if you don’t have any money, and account for recurring expenses in your budget. Even while an LLC offers greater formalization and asset separation between personal and corporate assets than a sole proprietorship, it’s crucial to consider the advantages and disadvantages of each legal structure before deciding which to choose. Additionally, if you’re thinking about forming a S corporation, be wary of California’s combined tax rate for 2021.
In a S corporation, the “S” stands for “small business.” When you hear the word “S corp,” you’re thinking of a particular kind of business that is taxed differently than a standard corporation and has some limitations on the kinds and number of shareholders.
The IRS does indeed have a 15-day rule for LLCs. The LLC must submit Form 8832 or Form 2553 within 15 days of being created or receiving an EIN (Employer Identification Number) to specify how it will be taxed. Failure to do so could lead to default taxes, which wouldn’t always be best for the LLC.