How California LLCs Pay State Taxes and Franchise Fees
What California LLCs actually owe in taxes
A California LLC pays two separate state charges: the LLC Franchise Tax (a yearly fee based on your gross income) and income tax on your profits. The franchise tax is what makes California different from most other states — you owe it whether your business made money or lost money that year. The income tax is only on the profit your LLC actually earned.
The franchise tax starts at $800 per year for any LLC doing business in California, even if you had zero revenue. If your gross income exceeds $250,000, the tax increases on a sliding scale. You pay this to the California Department of Tax and Fee Administration (CDTFA), and it is due by the 15th day of the fourth month after your LLC was formed (usually April 15th for a January formation).
Income tax works differently. Your LLC itself does not pay income tax — instead, the profits pass through to you and your members, and you report them on your personal tax returns. You may owe California state income tax on those profits, depending on your tax bracket and deductions. This is separate from the franchise tax and is filed on your personal return.
Key Takeaways
- California LLCs owe an $800 annual franchise tax minimum, due by the 15th of the fourth month after formation, regardless of whether the business made money.
- The franchise tax increases if your LLC's gross income exceeds $250,000, following a state-set fee schedule that goes up to $11,790 at $1 million in gross income.
- Income tax on LLC profits passes through to members' personal tax returns and is paid as part of your individual California state income tax, not by the LLC itself.
- You can pay the franchise tax online through the CDTFA website, by mail, or by phone, and late payments trigger penalties and interest starting immediately.
- If your LLC is inactive or dissolved, you may still owe the franchise tax for the year you stopped operating, and you must file a final return with the CDTFA.
The franchise tax fee schedule and how it is calculated
The California franchise tax is tiered by gross income. At $800 minimum, you pay that amount if your gross income is $250,000 or less. Once you cross $250,000, the tax jumps and continues to climb. At $1 million in gross income, you owe $11,790. The CDTFA publishes the full schedule on their website, and the brackets change each year based on inflation adjustments.
Gross income means all money your LLC took in before expenses — sales revenue, service fees, rental income, or any other money that came into the business. It does not matter if you spent most of it on payroll, rent, or supplies. The franchise tax is based on the top-line number, not your profit.
You calculate the tax yourself when you file your annual return. If you are unsure which bracket applies, the CDTFA's Form 568 (the LLC return form) includes a worksheet to walk you through it. Many accountants and tax software programs calculate it automatically if you enter your gross income.
When and how to pay the franchise tax
The franchise tax is due by the 15th day of the fourth month after your LLC was formed. For an LLC formed in January, that means April 15th. For one formed in June, it is October 15th. This deadline applies every year, and it does not change based on whether you file an extension on your income tax return.
You can pay online through the CDTFA's website using a credit card, debit card, or electronic bank transfer. You can also mail a check to the address listed on your tax notice, or call the CDTFA to pay by phone. If you pay by mail, send it early — the postmark date is what counts, not the date the CDTFA receives it.
If you miss the deadline, penalties and interest start accruing immediately. The penalty is typically 10% of the unpaid tax, plus interest at the current rate (which changes quarterly). If you are more than 60 days late, the penalty increases to 20%. The longer you wait, the more you owe beyond the original $800 or calculated amount.
Filing your LLC tax return with California
You file the franchise tax return on Form 568 (LLC Return of Income). This form goes to the CDTFA, not to the Franchise Tax Board (which handles personal income tax). You can file by mail or electronically through the CDTFA's online system. If your LLC has no income and no expenses, you still file — you cannot skip the return just because you owe the minimum $800.
The form asks for your LLC's name, formation date, gross income, and deductions. It also asks whether your LLC is a single-member LLC (taxed as a sole proprietorship) or a multi-member LLC (taxed as a partnership). This matters because it determines how the income flows to your personal return and whether you need to file additional forms.
If you formed your LLC partway through the year, you file a short-year return for that first year. The deadline is still the 15th of the fourth month after formation, but the return covers only the months you were in business. After that, you file on a calendar-year basis (January through December) every year.
How LLC income tax works on your personal return
Your LLC's profit is reported on your personal California tax return, not on a separate business return filed by the LLC. If you are a single-member LLC, you report the profit on Schedule C (Profit or Loss from Business). If you are a multi-member LLC, each member reports their share of profit on Schedule E (Supplemental Income and Loss).
The profit that flows through is your gross income minus your business deductions — rent, payroll, supplies, equipment depreciation, and other ordinary business expenses. You pay California state income tax on this profit at your personal tax rate, which ranges from about 1% to 13.3% depending on your income level.
This income tax is separate from the franchise tax. You can owe both: the $800 (or more) franchise tax to the CDTFA, plus state income tax on your profits to the Franchise Tax Board. They are two different bills from two different state agencies, and both are due by April 15th (or your extended deadline if you file for an extension).
What happens if your LLC is inactive or dissolves
If you stop operating your LLC but do not formally dissolve it, you still owe the franchise tax every year. Many business owners assume that closing the doors means they can stop paying — they cannot. The tax is owed as long as the LLC exists on the state's records.
To stop owing the franchise tax, you must file a Certificate of Dissolution with the California Secretary of State. Once the dissolution is approved, you file a final Form 568 for the year you dissolved. You may still owe the franchise tax for that final year, depending on when you dissolved and whether you had any income.
If you have unpaid franchise taxes from prior years, the CDTFA can place a lien on your personal assets or pursue collection. Dissolving the LLC does not erase old tax debt. If you owe back taxes, contact the CDTFA to set up a payment plan or discuss your options before the debt grows larger.
Deductions and credits that reduce what you owe
The franchise tax itself has no deductions — you owe it based on gross income, period. However, the income tax on your LLC's profit does allow deductions. Common ones include rent, utilities, payroll, contractor fees, office supplies, equipment purchases (depreciated over time), vehicle expenses, insurance, and professional services like accounting or legal fees.
You can also claim the home office deduction if you run the LLC from a dedicated space in your home. This is calculated as either a simplified rate (usually $5 per square foot, up to 300 square feet) or actual expenses (a percentage of your home's rent or mortgage, utilities, and maintenance based on the office's square footage).
California does not offer many credits specific to LLCs, but you may be may be able to access for the Small Business Gross Receipts Tax Credit if your gross income is under a certain threshold (this changes yearly). Check the CDTFA website or speak with a tax professional to see if you may have access to.
Frequently Asked Questions
Do I have to pay the $800 franchise tax if my LLC made no money?
Yes. California charges the $800 minimum franchise tax every year, regardless of whether your LLC had revenue or profit. The only way to stop paying it is to dissolve the LLC and file a Certificate of Dissolution with the Secretary of State. Even an inactive LLC that is still registered owes the tax.
What is the difference between the franchise tax and income tax?
The franchise tax is a flat fee (starting at $800) based on your gross income, owed to the CDTFA. Income tax is a percentage of your profit, owed to the Franchise Tax Board and reported on your personal return. You pay both, and they are filed with different agencies.
Can I pay the franchise tax late if I file an extension on my income tax?
No. The franchise tax deadline is separate from your income tax deadline. Filing an extension on your personal return does not extend the franchise tax due date. If you miss the franchise tax deadline, penalties and interest start accruing immediately, even if your income tax extension is still valid.
What if I formed my LLC in the middle of the year?
You file a short-year return for the months you were in business that first year. The franchise tax is still due by the 15th of the fourth month after formation. After that first year, you file on a calendar-year basis (January through December) every year going forward.
Can I deduct the franchise tax from my LLC's income?
The franchise tax itself is not deductible on your California return, but it may be deductible on your federal return as a state tax paid. Check with a tax professional about your specific situation, as federal rules can be complex and change year to year.