California LLC tax: the $800 annual tax and the LLC fee

Two charges, two due dates

The Franchise Tax Board (FTB) collects two different amounts from LLCs. The annual tax is a flat $800. The LLC fee is a second charge that only applies once total California income reaches $250,000.

Both apply to multi-member LLCs taxed as partnerships and to single-member LLCs that the IRS disregards. Each LLC also files Form 568, the California LLC return. Do not send the $800 with Form 568. It goes with Form FTB 3522.

An extension to file Form 568 does not extend the time to pay the tax or the fee. A due date on a weekend or holiday moves to the next business day.

The first year: what changed

LLCs whose first tax year began in 2021, 2022 or 2023 did not pay the $800 that year. That exemption has ended. An LLC formed in 2024, 2025 or 2026 owes the full $800 in its first year.

A 2026 state law (SB 122) brings a smaller break. The FTB says that for tax years beginning on or after January 1, 2027, and before January 1, 2030, the first-year annual tax is $400 instead of $800. The second year goes back to $800. The LLC fee is a separate charge and still applies if income reaches the first tier.

The first tax year starts when the LLC files with the Secretary of State. So the payment is due early. An LLC formed in mid-June owes its first annual tax by mid-September.

The LLC fee tiers

The fee uses total income from all sources derived from or attributable to California. That is a gross figure, before expenses, so a rental LLC with thin profit can still owe it.

If the June 15 estimate comes in short, the FTB adds a 10% penalty on the underpaid amount. There is no penalty if the estimate at least equals last year's total fee.

Biotech and startup founders with a Delaware entity

Many Torrey Pines and Sorrento Valley founders form in Delaware. That does not remove the California tax. An LLC owes the $800 if it does business in California, or if the Secretary of State accepts its foreign registration (Form LLC-5).

Under the FTB's rules, an entity does business in California if it is organized or commercially domiciled here, or if it actively engages in any transaction for financial gain here. It also does business here if its California sales, property or payroll pass dollar thresholds that the FTB adjusts each year. A Delaware LLC managed from a San Diego office is usually commercially domiciled here.

Whether your entity crosses the line is a judgment call for your CPA. Your bookkeeper's job is to keep California sales, payroll and property easy to pull, so the CPA can answer fast. Corporations have their own $800 minimum franchise tax, which is a separate rule.

Rental owners with one LLC per property

Some owners put each Mission Beach or North Park unit in its own LLC. Each LLC owes its own $800, files its own Form 568 and, if its gross rents reach $250,000, pays its own fee. Three properties in three LLCs means three annual taxes.

In the books, give each LLC its own bank account and its own file, or at least its own class. Rent, platform payouts, occupancy tax and repairs should never mix between entities. See short-term rental bookkeeping for the monthly routine.

The city business tax on top

State LLC tax and city tax are separate. The City Treasurer says every business operating in the City of San Diego needs a Business Tax Certificate, and the amount is set by employee count. Owners who rent residential property in the city also face the Rental Unit Business Tax. Our San Diego business tax guide covers both.

Closing an LLC to stop the $800

1. File a final Form 568 File it on time, check the final return box, and pay the $800 for that last year.
2. Stop doing business The LLC must not do business in California after the final tax year.
3. Cancel with the Secretary of State File Form LLC-4/7, Certificate of Cancellation, within 12 months of the final return. A late filing can trigger another year's return and $800.

A California LLC that never did business can use the short form cancellation within 12 months of filing its articles. Ask your CPA which path fits.

Questions