Something you may need to beware of is the single member LLC (SMLLC) rules of California. Even if you have a net LOSS. Take note that if you are a single member LLC doing business in California, you may happen to fall into a small category of certain filing requirements. As a single member LLC, you are considered a disregarded entity for federal and most state tax purposes. As such, you report all your net income or loss on a Schedule C of your individual tax return. While your entity is disregarded for federal and generally for California tax purposes, the general rule does not apply for purposes of the $800 LLC fee assessed by California.
A California filing requirement, thus subjecting the entity to the LLC tax and fee, includes:
- Registration to do business in California with the CA SOS,
- Being organized in California with the CA SOS, or
- Doing business in California.
Doing business in California means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.
Most likely, California will determine that you have done business in California and will require the filing of Form 568. On this form, California has a minimum LLC tax payable to the Franchise Tax Board of $800 per year, with no regard for the sales amounts or your net income or loss. Additionally, there is an LLC fee based on the amount of your gross receipts (total sales), not on your net income. This fee can range from $900 – $11,790.
- For gross receipts over or equal to $250,000, the fee is $900.
- For gross receipts over or equal to $500,000, the fee is $2,500.
- For gross receipts over or equal to $1,000,000, the fee is $6,000.
- For gross receipts over or equal to $5,000,000, the fee is $11,790.
Overall, it is important to keep a watchful eye on if you have sales in California to ensure you are filing the correct forms.