Question

2021 CA Form 568 Company Tax Fee for Single Member LLC formed in 2021

Forum|Forum|4 years ago
February 21, 2022
2 replies
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I formed a Single Member LLC in California in 2021. When I fill out form 568 in Turbotax, the annual LLC tax line 3 is auto-filling with $800 and I cannot override it. I believe the correct answer for first year LLC's established in 2021 is $0. How to address this?

Exemption Reference: FTB site: https://www.ftb.ca.gov/forms/2021/2021-568-booklet.html

"Exemption from First Taxable Year Annual LLC Tax – For taxable years beginning on or after January 1, 2021 and before January 1, 2024, an LLC that organizes, registers, or files with the Secretary of State to do business in California is exempt from the annual LLC tax in its first taxable year."

Other

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GeorgeM777

The $800 franchise tax appears correct. Prior to the passage of the new regulation you cite, CA LLCs paid an $800 fee within 2-3 months of being approved. Then they paid that fee again April 15th every year. In some situations, LLCs formed later in the year (October – December) ended up with back-to back payments of $1,600. Now, LLCs will only pay the $800 franchise fee once per year. Thus, because your LLC was formed in 2021, you do not owe the franchise tax for 2021 (which would have been due April 15, 2021). Therefore, your first franchise tax payment is due April 15, 2022.

@shog92

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shog92Author

Thanks George. Line 3 & 7 on form 568 seem to relate to the 2021 tax of $800. In addition, the program populates form 3522 for a 2022 tax payment of $800 due on April 15. I agree with you, the 2022 payment using form 3522 sounds correct, but not the 2021 payment appearing on lines 3 & 7 of the 568. But again, cannot override the value.

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GeorgeM777

As a follow-up to the last response, the following information was obtained from the CA Franchise Tax Board website and provides additional information regarding who is, and who is not, subject to the $800 franchise fee.

"Because of the operative date specified in AB 85, the 15-day rule may impact whether an LLC, LP, or LLP is eligible for the exemption from the annual tax during its first taxable year. The 15-day rule is a set of provisions within the California law (R&TC Sections 17936, 17946, 17948.2, and 23114) that provide some relief to business entities (LPs, LLPs, LLCs, and corporations) from the general requirement to pay the annual/minimum tax.

A business entity is not subject to the $800 annual/minimum tax if the entity both:

Did not conduct business in the state during the taxable year
The taxable year was 15 days or less

For example, if an entity filing on a calendar year basis is formed on December 17 or after and does no business for the remainder of the year, then it may not have to file a tax return and pay the $800 annual/minimum tax for that short tax year. Since an entity that meets the 15-day rule is not required to file a tax return, this time period is not considered the first tax year. The following tax year will be considered the first taxable year."

Here is a link to the webpage from which the above quoted material was obtained.

All About CA Business

@shog92

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s9231

Hello, where is TurboTax with this? I filed estimates taxes for an extension, so it still applies to me. Thank you!

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GeorgeM777

In TurboTax there is now the option for the taxpayer to claim the first year exemption from the CA annual tax. The process to claim an exemption is essentially the same whether you are using TurboTax online or TurboTax CD/download.

When you are in the CA section, go to your Business Summary page, click done if there are no changes to make and the next screen you should see a question about whether your LLC is a single member LLC. Continue through the application and you will see a screen showing the First Year Exemption Worksheet. Place a check in the appropriate box to claim an exemption for the annual tax.

@9231

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Expert1040

Thanks everyone(SMLLC kings&queens) in the thread for your strong standing on the right side to take it to the final solution. It helps for beginners like me this year.