Understanding and complying with state tax requirements is key for any California LLC hoping to avoid stiff penalties. But the ever-changing landscape of the state’s tax code can make this a difficult task. While you hope to remain in compliance with tax law, you may also be looking for avenues to reduce your burden to allow for your business to thrive.
The tax rates for California businesses remain relatively unchanged. You will be responsible for franchise tax, sales tax, and several others that are well known in the state. However, legislators have acted to provide relief measures for California small business owners dealing with the consequences of the COVID-19 pandemic. Understanding these measures will be critical for your LLC’s ability to utilize the benefits at its disposal.
NewPoint Law Group, LLP recognizes the difficult prospect of navigating the complexities of state tax obligations for your LLC. That is why our diligent California tax lawyers stay on top of the recent developments in tax code and relief programs. To schedule your first consultation on our services and how we can help your LLC remain in compliance, call our offices today at 800-358-0305.
Taxes and Rates for California LLCSs in 2021
The applicable tax rates for limited liability companies (LLCs) in California are as follows: a flat annual franchise tax of at least $800, an additional LLC fee that will be somewhere in the range of $0 to $11,790, and a FICA tax of 15.3% of taxable wages.
The LLC fee is determined by your gross California income, rounded to the nearest whole dollar amount. The fee must be paid by the 15th day of the sixth month of the tax year. Below are the LLC fee obligations by level of gross income:
– For income between $250k and $500k, the fee is $900
– For income between $500k and $1m, the fee is $2,500
– For income between $1m and $5m, the fee is $6,000
– For income greater than $5m, the fee is $11,790
Additionally, LLCs are imposed sales tax and Nonconsenting Nonresident members’ tax, but those figures vary between location within California and personnel makeup of the LLC. California LLCs are not subject to corporate tax but will face California state taxes on owner income.
If an LLC sells goods in California, it must collect sales tax. Other California state taxes that will affect LLCs in 2021 will include California employee withholding tax, disability insurance, and unemployment insurance tax.
New Budget Measure Relieves LLCs of First-Year Franchise Tax in California
On January 1st, 2021, a new piece of California state legislation went into effect that will lighten the tax burden on new corporations. The 2020 Budget Act, signed by Governor Gavin Newsom in June of last year, extends a first-year exemption on franchise tax to include LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs). Prior to this new legislation, corporations that filed, registered, or were organized to do business in California were subject to the state’s $800 annual minimum franchise tax. Now, all new businesses are exempt from their first round of state franchise tax.
The goal of the legislation was to remove obstacles for Californians who wanted to start their own business and to provide relief for entrepreneurs dealing with the COVID-19 pandemic. This legislation will not affect the franchise tax liability for businesses in their second year or older.
Other COVID-19 Tax Relief Measures for LLCs in California
California legislators have implemented further tax benefits for California LLCs that taxpayers should be aware about. Below are just a few of the opportunities for tax relief that you should look to take advantage of:
Main Street Small Business Tax Credit II
For qualified small business owners, the extension of the original Main Street Small Business Credit will help out those who apply and are accepted by helping them meet their payroll obligations. Beginning on November 1, 2021, small business employers may begin applying for hiring credit reservation amounts through the California Department of Tax and Fee Administration (CDTFA). The program works on a first-come, first-served basis, so it is imperative that you act quickly to take advantage of the benefits. Qualified small business employers can reserve $1,000 per net increase in the total of qualified employees. The small business can then use that credit to offset income taxes or sales and use taxes upon filing their subsequent returns.
Small Business Relief Payment Plans for Sales and Use Tax
The State of California is offering a 12-month, zero-interest payment plan to be used for sales and use tax liability. The payment plan will cover up to $50,000 of any outstanding sales and use tax that is owed. The small business must generally have less than $5 million in taxable annual sales in order to qualify. However, exceptions may apply where the small business derives a large portion of their taxable sales in sectors that are particularly affected by COVID-19 pandemic-related operational restrictions. The payment plan must be satisfied fully by April 30, 2022 in order for the small business to avoid incurring any interest on the outstanding balance.
Extensions for Filing Returns
For the vast majority of taxpaying LLCs, deadlines for filing tax returns will be extended to allow for some relief in light of the COVID-19 pandemic. Qualified LLCs can avoid interest and penalties for late filing of returns so long as the payments and returns are submitted properly within three months of the original return deadline. For quarterly and monthly filers, some of the prepayment deadlines have been altered. For instance, monthly filers who report less than $1 million in tax on their return that was originally scheduled between December 15, 2020, and April 30, 2021, have a three-month extension on their filing deadline. While some extensions may apply automatically, some LLCs are required to apply for an extension.
If you are curious about whether your LLC qualifies for an extension on your filing returns, speak to one of the experienced California tax attorneys at NewPoint Law Group, LLP as soon as possible.
Get Experienced Tax Law Help for Your California LLC Today
If you have concerns about your California LLC’s tax compliance or are looking to take advantage of government relief efforts, the qualified California tax lawyers at NewPoint Law Group, LLP may be able to help. Schedule your first appointment with us by calling 800-358-0305.