California taxes for single-member LLC: did I get them right?


4

After reading and reading about taxes, I think I've grasped which taxes I should pay and when to pay them. Still, it'd be really great if someone could confirm I have it right. I will appreciate any answer, even if you can comment only on certain parts.

The idea is that (a) I'll (very) soon file for a single-member LLC based in the state of California, and (b) I do not expect any revenues (in fact, I will be at loss) for 2011.

My understanding is that:

1) I will have to pass the $0 revenue (or rather -- the losses) from the LLC on schedule C of my personal income tax return by April 15.

2) Once it is confirmed that my LLC has been accepted and registered, I'll have 4 months and 15 days to pay my first California state min tax of $800. And then, I'll have to pay it again by April 15th of 2012. (So even if my LLC exists for just 3 months in 2011, I can't escape the $800 for 2011 unless I wait till 2012, right?)

3) Once my LLC is registered, I need to start sending quaterly estimates. The first one, if I'm correct will be due by Jan 15, 2012, and I'll just have to estimate "$0".

4) And finally (hopefully there are people with businesses in San Fran here), although the company is online based, because of its address, I will also have to file in a Payroll Expense Tax Statement with the city of San Francisco if one day my payroll expense is greater than $150,000.

Did I get anything wrong?/Do you have any suggestions or useful tips?

EDIT : Maybe I should have added a couple more details. The business will be entirely online, but I will be working on it from home, which is why it'll have a San Fran address. Also, I'll start testing the beta site not earlier than December with a number of limited users -- will this count as "doing business" (for the purpose of the $800 tax) if I do not charge them for the testing out the beta?

LLC Tax California

asked Sep 24 '11 at 06:55
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Claudia
52 points

2 Answers


2

Claudia,

Question 1 - To quote from the California LLC instructions:

LLCs are subject to an $800 annual tax if they are doing business in
California or have articles of organization accepted, or a certificate
of registration issued by the California SOS. The annual tax is
prepaid for the privilege of doing business in California, and is due
and payable on or before the 15th day of the 4th month after the
beginning of the taxable year.

Question 2 - Mostly answered above, but there is one exception to this rule. Under R&TC section 17946, an LLC is not subject to the annual tax if it did not do business in the taxable year and its taxable year was 15 days or fewer.

Question 3 - Assuming you will be a single member LLC (not taxed as a corporation), the LLC will have no tax to pay other than the $800 unless you are subject to the LLC fee. The LLC fee will apply if your gross income exceeds $250K. Since you have to pay the entire $800 in the first estimate, most likely that will be your only estimate for the LLC. If you realize some net income from your endeavor, you may need to adjust your estimates for your personal return.

Question 4 - I don't know anything about San Francisco other than that I would not try to run a business there.

Good luck!

Jack

answered Sep 24 '11 at 09:37
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Jack Rodenhi
607 points
  • Hi Jack, thank you for your reply. I've added some details to my question, and I'm wondering -- if I'm not charging the users that will be testing out the site in December, will that be regarded as "Doing business" or not? Any idea? As for San Francisco -- the business will not be related to the city, just the address since I'll be using my home to work on it initially. – Claudia 8 years ago

1

I may be wrong, but the main reason I would choose to incur the added trouble and expense of being a Limited Liability Company is to take advantage of the limited Liability. So far as the liability that you might incur doing business online in beta status, you might decide that there isn't any but you should probably also consider getting a good Errors and Omissions insurance policy. That way, if you actually do cause some damage to someone, they could possibly recover something and you would have some protection.

Bearing that in mind, you might decide that, although you are going to start testing before December, you don't want to operate as an LLC until next year. Don't register until you are ready. Tax-wise, as a single member LLC, whether you are operating as an LLC or not, you report your income and expenses on your personal Schedule C. When you start doing business as an LLC, in addition to the reporting on your personal return, you have to register with the Secretary of State, pay your minimum tax, and file Form 568 to report your gross income to the state.

So far as operating online while residing in the state constituting "doing business" in California, I think California would definitely consider it to be so. I can't imagine San Francisco would forgo that revenue either.

Finally, most of the time, I see the start of business as being the day the first sale is made. That works pretty well for restaurants and other typical brick and mortar businesses. But, in your case, I would probably want to go with the first day you interact with the public whether they are paying or not. California would probably follow that approach for determining when your first tax payment is due.

answered Sep 25 '11 at 07:22
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Jack Rodenhi
607 points

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