California LLC Taxes

The default tax classification for your California LLC depends on whether it has one or more members. Single-member LLCs (SMLLCs) are taxed as sole proprietorships by default, while multi-member LLCs are taxed as general partnerships. LLCs are pass-through entities under default classification, meaning revenue is passed on to members to pay in personal income tax. Meanwhile, the LLC itself pays no corporate income tax, but will need to pay California’s franchise tax.

LLCs under default classification use these forms to file federal taxes:

• Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCsfile C-EZ, E, or F)
• Multi-member LLC—Form 1065

However, LLCs are not limited to default tax classification—they can also elect S-corp or C-corp tax status. Here’s what that means for you and your LLC:

California LLCs taxed as S-corp

S-corp status is beneficial for some LLCs—S-corps do not pay corporate income tax, and can make member distributions that are not subject to the 15.3% self-employment tax.

Your LLC can elect for S-corp status by filing IRS Form 2553. Before you file, check the IRS S-corp requirements to make sure your LLC qualifies, as only US-originating companies with certain limits on shareholders and stock can become S-corps. You may also want to speak with a CPA beforehand to learn if the more complex S-corp tax filing (through IRS Form 1120-S) will actually save you money—as not all LLCs will under S-corp status.

LLCs taxed as C-corp

It’s relatively rare, but some LLCs choose to be taxed as C-corps, the default tax status of corporations. C-corps do have a drawback in “double-taxation,” with the company paying 21% federal corporate income tax and the 8.84% California corporate rate, and shareholders getting taxed on dividends. However, C-corps are also eligible for a wider range of tax breaks than default LLCs or S-corps, and are often more appealing to investors. As a result, electing C-corp status makes sense for some LLCs.

Before filing for C-corp tax status with the IRS (Form 1120), we recommend speaking to a CPA to see if your LLC will benefit from the change.

California has a graduated personal income tax rate in nine brackets, ranging from 1% on income up to $9,325 a year to 12.3% for incomes of $625,370 or more. An additional 1% surcharge applies for incomes over $1 million.

Most California businesses have to pay an $800 annual franchise tax, LLCs included. Ordinarily, the first annual franchise tax payment is required within the four months of an LLC’s organization, but California has temporarily waived this provision for new LLCs formed between January 1, 2021 and January 1, 2024.

The franchise tax is due on the 15th day of the fourth month of your taxable year. The tax applies until you cancel your LLC, even if you are not actively in business. After the start of 2024, new LLCs can avoid the annual $800 tax by filing SOS Form LLC-4/8 within a year of your LLC’s formation and canceling it. Submit the annual franchise tax with an LLC Tax Voucher FTB 3522 form.

If your LLC is taxed as a C-corp, it will be subject to California’s corporate income tax, a flat 8.84% for all qualifying business that earned a profit that year. C-Corp companies that did not make a profit pay the flat 6.65% alternative minimum tax. Learn more about state income taxes at the California Franchise Tax Board website.

California LLC Fee

On top of income and annual franchise taxes, the state also has a special fee for any LLC making $250,000 or more in California income, divided as follows:

• $250,00 to $499,999 – $900 fee
• $500,000 to $999,999 – $2,500 fee
• $1,000,00 to $4,999,999 – $6,000 fee
• $5,000,000 or more – $11,790 fee

LLC fees should be submitted with an Estimated Fee for LLCs Form 3536.

California has a statewide sales tax of 7.25%. Counties and cities can impose their own sales tax on top of that, and California’s highest general sales tax is 10.75%, the rate in some parts of Alameda County. You can find the specific sales and use tax rate for your location with a searchable map from the California Department of Tax and Fee Administration, where you can also register your LLC for a sales and use tax seller’s permit.

Some cities and counties in California impose taxes of their own, such as San Francisco’s .38% city income tax on residents and workers, a 12% lodging tax in Los Angeles County, and more. You will need to pay local taxes for your LLC both in its home location and in any other cities or counties where it conducts business.

Here are some other taxes that are imposed by the state of California.

California State Employer Taxes

California employers must pay unemployment insurance and workers’ compensation taxes:

• Unemployment Insurance (UI) Tax—The first $7,000 of an employee’s yearly wage is taxed a percentage for unemployment insurance. New employers pay 3.4% for two to three years. After that point, a new rate is issued each December. The maximum possible UI tax rate is 6.2%, totaling a yearly cost of $434 per employee.
• Workers’ Compensation—California employers are required to purchase workers’ comp insurance for all employees. Rates vary based on claim history and the risk involved in the work your employees do, but California averages a $2.16 per $100 of payroll index rate.

To learn more about California employer taxes, visit the California Employment Development Department website.

Industry Taxes

The California Department of Tax and Fee Administration also taxes certain industries in the state, including:

• Alcoholic Beverage Tax
• California Tire Fee
• California Electronic Cigarette Excise Tax
• Cannabis Taxes
• Childhood Lead Poisoning Prevention Fee
• Cigarette & Tobacco Products Tax
• Covered Electronic Waste Recycling Fee
• Diesel Fuel Tax
• Energy Resources (Electrical) Surcharge
• Fire Prevention Fee
• Hazardous Waste Fees
• International Fuel Tax Agreement (IFTA) and Interstate User Diesel Fuel Tax
• Fuel Taxes
• Lumber Products Assessment
• Marine Invasive Species (Ballast Water) Fee
• Oil Spill Prevention and Administration Fee & Oil Spill Response Fee
• Tax on Insurers
• Timber Yield Tax
• Underground Storage Tank Maintenance Fee
• Water Rights Fee

Yes. If you have a California foreign LLC (an LLC doing business in California but formed outside the state) you still need to pay all applicable California taxes, including the annual franchise tax and LLC fee.