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A California LLC can now legally “avoid” the $800 Annual Franchise Tax (1st year)
California Assembly Bill 85 was signed into law by the governor on June 29th, 2020.
While California Assembly Bill 85 affects multiple aspects of the state budget, we’re focusing on how it affects people forming an LLC in California.
California Assembly Bill 85 changed Section 17935, Section 17941, and Section 17948 of the California Revenue and Taxation Code.
There is now some financial relief for the 1st year for people forming an LLC in California.
California LLCs before Assembly Bill 85:
California LLCs paid an $800 fee within 2-3 months of being approved.
Then they paid that fee again April 15th every year.
LLCs formed later in the year (October – December) ended up with back-to-back payments, totaling $1,600.
California LLCs after Assembly Bill 85:
California LLCs don’t pay an $800 fee for their 1st year (if the LLC is formed after January 1st, 2021).
This completely eliminates the back-to-back $1,600 payment issue!
And it moves an LLC’s first $800 payment 12-16 months after the LLC is approved.
When is my LLC’s franchise tax due?
If your California LLC goes into existence on or after January 1st, 2021 (but before December 31st, 2023), there is no $800 payment due the 1st year.
The first $800 payment is due in the LLC’s 2nd year.
Let’s look at a few examples below.
California LLC franchise tax due dates (after Assembly Bill 85):
|LLC approval date||No payment this year||First $800 payment|
|Any day in 2021||2021||Due April 15th, 2022|
|Any day in 2022||2022||Due April 15th, 2023|
|Any day in 2023||2023||Due April 15th, 2024|
|Any date in 2024||2024||Due 2-3 months after approval|
Said another way:
Your first $800 payment is due the year following the year your LLC is approved.
Does my California LLC need to pay franchise tax in the 2nd year?
Yes, it does. Your California LLC needs to pay the $800 franchise tax payment starting in its 2nd year, and continuing onward.
The California LLC franchise tax exemption from Assembly Bill 85 only covers the LLC’s 1st year.
Your California LLC needs to pay the $800 franchise tax payment in its 2nd year and for all years afterward.
Does my California LLC need to file Form 3522 (Limited Liability Company Tax Voucher) in the 1st year?
No, since your California LLC doesn’t need to pay the $800 franchise tax for its 1st year, you don’t need to file Form 3522.
Form 3522 will need to be filed in the 2nd year.
For instructions on filing Form 3522, please see California LLC Annual Franchise Tax.
Does my California LLC need to file Form 3536 (Estimated Fee for LLCs) in the 1st year?
Yes, your California LLC needs to file Form 3536 and pay an Estimated Fee if it will make more than $250,000 in total revenue.
If your LLC will not earn that much in total revenue, then you don’t need to file Form 3536 (in the LLC’s 1st year or any year.)
What is the Estimated Fee for California LLCs?
It’s called an “Estimated” Fee because you will need to forecast your LLC’s total revenue. If your LLC will come close (or exceed) $250,000 in total revenue, then you should file Form 3536 and pay the Estimated Fee.
The Estimated Fee begins at $900 and increases depending on your LLC’s estimated income. For more information and instructions, please see California LLC Annual Franchise Tax.
What’s the goal of Assembly Bill 85 for business owners?
The overall goal of Assembly Bill 85 is to bring in additional tax revenue to the state.
Section 24(b)(1) of Assembly Bill 85 states:
“The goal of this act is to help and reduce costs for first-year California small businesses.
Existing law imposes an Annual Minimum Franchise Tax of $800 on every Corporation, and an Annual Tax of $800 on every Limited Liability Company (LLC), Limited Partnership (LP), and Limited Liability Partnership (LLP), which may be difficult to afford for first-year businesses.
As such, these taxes may stifle economic growth and job creation and may inhibit the formation of many small businesses.”
It may seem counterintuitive to remove fees in order to bring more tax revenue to the state. However, the California Legislature hopes that by removing the $800 Annual Tax on first-year businesses, this will bring in more tax revenue in the future.
California Franchise Tax Board Contact Info
If you have any questions, you can contact the California Franchise Tax Board (FTB) at 800-852-5711.
Their hours are Monday through Friday from 8am to 5pm, Pacific Time.
- While hold times can sometimes be long, the FTB has an option to hold your place in line and call you back.
- You can check how long the wait times are: CA FTB: wait times.
- There is also a live chat option: CA FTB: live chat.
California Legislature: Assembly Bill 85
Department of Finance: California Budget 2020-2021
CALIFORNIA LLC GUIDE
Follow the lessons below to form your California LLC.
56 comments on “California – Annual LLC tax exemption (Assembly Bill 85)”
Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.
I registered my Business on October 17 and was approved by the SOS Bizfile on Oct 18, 2022.
The business goes to existence on Jan 3, 2023. Do I need to pay the $800 franchise tax fee
in the coming April 15, 2023?
Appreciate your reply.
I formed my LLC in Feb 2022. To pay the $800 that’s due by April 15, 2023, which version of Form 3522 should I use: Taxable Year 2022 or 2023?
I’m a little confused because I didn’t need to pay $800 for the 2022 tax year because of AB 85 but the $800 payment is due April 15, 2023.
Does the $800 payment I’m making by April 15, 2023 apply to taxable year 2022 or 2023?
Looking forward to your response
My understanding is I should use the Taxable Year 2023 version of Form 3522 to make my first $800 payment.
Also, on Form 568, I should report $0 on the “2022 annual Limited Liability Company tax” line since I was exempted from paying the $800 for 2022.
I’m not sure if my understanding is correct. Please let me know if I’m wrong.
I formed my LLC in March 2022 and paid the $800 tax fee in July 2022 not knowing about the exemption for the first year. Does that mean I don’t have to pay the $800 fee this year? Can I assume that my early payment will be applied to when the amount was due for this year? Or, do I need to pay the $800 this year and file a claim for reimbursement?
Hi Matt, So, I formed my LLC on 12/5/2022, I need to pay the 800 by 4/15/2023 right?
Also, If somehow I planning to dissolve the LLC in this year which is 2023, Do I still needs to pay the 800 CA TAX on 4/15/ 2024 even I didn’t make any money this year?
This is very helpful. As a foreign registered SMLLC, registered in CA in Apr 2022, my understanding is:
– I don’t need to pay the $800 LLC Annual Tax for 2022 (due to AB 85)
– I need to pay the $800 Annual tax for 2023 and file form 568 before Apr 18, 2023
Can you confirm my understand please? Also, do I need to also file Form 540NR for personal nonresident because I own a SMLLC? Or filing 568 is sufficient?
Hey KJ, we can’t comment on all the federal and state forms you need to file (we recommend speaking with an accountant), however, yes, you are correct. No need to pay $800 for the 2022 tax year because of AB 85, however, there is an $800 payment due for the 2023 tax year (due by April 15, 2023). Hope that helps and thanks for your understanding.
Understood. Thank you, Matt!
Hi there! I started my LLC as a single member on 05/11/22 and was exempt from the initial $800 franchise fee. I’m now in the process of dissolution, and my LLC should be terminated within 12 months of starting (I did make revenue however.) Am I eligible to fill out a short form cancellation and avoid the $800 franchise fee for the next taxable year? Or do I need to pay the fee before terminating?
Hi Brooklyn, no, you’ll need to pay the $800 for the 2023 tax year, since your LLC existed during a part of this tax year.
Hello, I filed my Articles of Organization in CA on 12/22/22. I believe this would mean I qualify for the first-year exemption of the $800 Annual Tax. Is there any paperwork or form required to fill out in order to receive this exemption, or is there no action required on my part at all until I pay the 2nd year Annual Tax on April 15, 2023?
Hi Lauren, you actually get 2 “bonus” years. This is because of the 15-day rule plus AB 85. If your LLC went into existence in 2022, but after December 17th, it’s as if it didn’t exist (for CA tax purposes) until January 1, 2023. And therefore, you’d be exempt from paying the $800 for the 2023 tax year (which would be due April 15, 2023). Instead, you’ll make your first $800 payment in 2024 (due by April 15th). And no, there is no action required to receive this exemption. You simply just don’t pay it. Hope that helps!
I started my LLC on 12/22/2022 and filed articles of organization on 1/5/2023. I haven’t done any business so far. With 15 day rule and first-year annual tax exception with Assembly bill 85, Do I pay my $800 before April 15th, 2024? Or should I pay on April 15th of this year?
Hi Kavitha, I’m a little confused by what you mean by “I started my LLC on 12/22/2022 and filed articles of organization on 1/5/2023“. How did you start your CA LLC before the Articles of Organization was approved? What date was your Articles of Organization approved?
LLC was formed in Delaware in 2022 but never registered with the CA SOS. If the entity files a 2022 Form 568, I’m assuming they will need to pay the $800 for 2022 since the LLC never registered with the CA SOS. Thanks
Hi Kevin, I don’t know the answer to that. I’d check with the California Franchise Tax Board. Thank you for your understanding.
If a California LLC was formed in November 2022 and is being dissolved Feb 2023, does the LLC still need to pay the $800 for 2023?
Hi Ron, yes, it does. This is because the LLC existed in 2023.
Hi Matt, So, I formed my LLC on 12/5/2022, I need to pay the 800 by 4/15/2023 right?
Also, If somehow I planning to dissolve the LLC in this year which is 2023, Do I still needs to pay the 800 CA TAX even I didn’t make any money this year?
A new LLC formed in California (after AB 85) does not own the $800 fee for its first year of formation. If the LLC’s gross income is $300,000 in its first year of business, does it owe $900 on the excess over $250,000. grossed in that first year of business?
Hi Bob, yes, an LLC with over $250,000 in gross receipts sill needs to file the LLC Estimated Fee.
Mi llc fue creada el 10/21/2021, en el 2022 no tenia que pagar el annual report?, solo pagaría ahora en el 2023?
Hola Guisella, eso es correcto. No debes un pago de $800 para el 2022, pero ahora sí debes uno para el 2023.
For example I create an LLC by 1/31/223. The $800 tax will be due by April 2024. What happens if LLC is terminated/dissolve by December 2023? Is the $800 tax still owed on April 2024?
Also, if my LLC made $1000 only in revenue, is this tax still applicable? Is there a minimum income/profit/revenue?
Hi Carl, in that scenario, if the LLC was dissolved before the end of 2023, there’d be no $800 payment due (but a return would still need to be filed). And yes, the tax is applicable regardless of how much money the LLC made, or didn’t make.
Our Articles of Organization were filed in July 2020. I have filed and paid the Statement of Information fee, but because the organization has and never has had any! income, I have not paid the annual $800 fee. s this a problem?
Hi Derry, yes, you’ll need to pay this (and a late fee) when you file the LLC Return of Income. We recommend working with an accountant to make sure you’re all up to date.
I was not aware of AB85 when I formed my LLC in 2022 so I paid the $800 fee in 2022 when I didn’t have to based on AB85. Is there a way for me to get exempt from this payment in 2023? Or get a refund? What can I do so I could take advantage of this when I’ve paid when I didn’t have to? Thanks.
Hi Stephen, I recommend speaking with an accountant. I’m sure there’s a way to account for it on your Form 568, LLC Return of Income.
I started training (education) for a career in Real Estate on April 1, 2022. I went to several trainings/classes & started paying a monthly subscription for R.E. software. I haven’t made any money (as of Nov. 30, 2022). I want to file my LLC on Dec 19, 2022. I was assured it would be approved by CA Franchise Board before Dec. 31, 2022. I will have sustained a loss of over $20,000 by Dec. 31, 2022. I was told by an attorney that I could “carry through” my losses from 2022 into 2023 if my LLC was approved by Dec. 31, 2022 and claim them on 2022 tax return (submitted April 15, 2023). Since the losses were incurred BEFORE the LLC was approved, is this advice correct?
Hi Donna, we’re not 100% as we’re not a tax firm. We recommend checking with an accountant.
I started my LLC in December 31, 2020, does that mean I have to pay $1600? It states registration was December 31, 2020 and the SI-COMPLETE as February 1, 2021.
Hi Connie, you don’t pay $1,600 (because of the 15-day rule). Your LLC also doesn’t file a Form 568 for 2020 (would be due April 15, 2021) because of the 15-day rule.
But because your LLC went into existence in 2020, Assembly Bill 85 doesn’t apply and your LLC needs to pay the $800 franchise tax for the 2021 tax year and that is due by April 15, 2021. Hope that helps.
Is it possible to receive a refund for the $800 franchise tax or a waiver to pay 2021 Franchise Tax? I set up my LLC in June 2020, technically I am still in my first year of business. Thank you :)
Hi Jasmine, not that we’re aware of. You can call the Franchise Tax Board (800-852-5711, 8:00am – 5:00pm, M-F) and ask though. Your LLC owes/owed an $800 payment for the 2020 tax year (due Sept. 2020) and it owes an $800 payment for the 2021 tax year (due April 2021). The LLC must also file Form 568 this April, 2021. We recommend working with an accountant.
Hi Matt. I setup my LLC on January 30, 2021. The California business name search is showing 2/1/2021 and a status of Active. I was curious if the back to back $800 payments are both forgiven with the AB85 bill? I just want to be sure I pay the necessary fee. Thank you!
Hi Ashley, you are safe. Because your LLC went into existence in 2021, there are no back-to-back payments to worry about. Your LLC doesn’t owe a franchise tax payment for 2021. The first $800 will be due by April 15th, 2022. Hope that helps :)
I just filed my LLC on 12/22/20, with the understanding that it would take 15 days to process. Needless to say it did not and my LLC is now active. Will I be required to pay the $800 for 2021? If so Is there a way to cancel the LLC, and reinstate in 2021?
Hi Terri, yes, your LLC will owe an $800 payment due by April 15, 2021 (paying for the 2021 year). And yes, if you cancel the LLC now and form another LLC (with the same name) in 2021, your LLC won’t have to make an $800 payment in 2021. Instead, its first $800 franchise tax payment will be due by April 15, 2022.
How to cancel your California LLC:
You can cancel your LLC by filing online with the California Secretary of State. Their online filing system is called BizFile. Click “File Online”. On the next page, click “LLC Termination” and then follow the prompts.
When you go to refile in 2021, you can use the exact same LLC name, since once an LLC in cancelled in California, it looses the exclusive rights to its name. Hope that helps!
Thanks so much, I am so grateful to have found this site!!
You’re very welcome Terri :) Awesome!!
Hi, Thank you for writing about such important tax updates. My question is if I start an LLC say the end of the year Dec 15th-December 30th, does this new rule apply or I have to wait until January 1st?
Thank you in advance
Hi Rosario, you’re very welcome. In order for the new rule to apply, your California must go into existence in 2021. You can either wait until January to file, or you can file in December and list a Future File Date of 1/1/2021 on the California LLC Articles of Organization. If you are going to use the Future File Date of 1/1/2021, you’ll need to file online (as opposed to filing by mail). Hope that helps :)
Hi Matt, In above scenario for Rosario, since CA LLC is registered within last 15 days of calendar year 2020, $800 franchise tax for 2020 is not required as its considered to not exist for 2020.
However $800 franchise tax for 2021 tax year will be due in Apr 2021 because CA LLC application date is in last 15 days of Dec 2020? Please clarify.
Hi SJ, you are correct regarding the 15-day rule and that the LLC would not owe a franchise tax payment for 2020. However, Rosario is asking about Assembly Bill 85 and the new rule: LLCs that go into existence between 1/1/2021 and 12/31/2023 don’t pay franchise tax for their 1st year. So if an LLC went into existence in 2020 between December 17th and December 31st, while there would be no $800 payment due March 15, 2021 (paying for 2020) because of the 15-day rule, there will be an $800 payment due April 15, 2021 (paying for 2021). On the other hand, if the LLC goes into existence in 2021, there is no payment due on April 15, 2021. The first $800 payment will be due April 15, 2022. Hope that helps.
Got it, Thanks so much for clarifying and needless to say your website has ton of awesome info.
You’re very welcome SJ. And thank you!
I didn’t see this resource before I registered my Delaware LLC (formed in March, 2020) in California during the last week of November. It looks like not only do I now have to pay $800 for 2020 but I also missed out on the new legislation removing the $800 first year cost. Is there any way to undo or remedy this?
Hi Chris, unfortunately, not that we’re aware of. Since the LLC has been registered to do business for more than 15 days in 2020, it’s responsible for the $800 franchise tax payment (paying for 2020), which is due by February 15, 2021 (if LLC was approved in November 2020). Then the LLC’s 2021 payment is due just 2 months later and is due by April 15th, 2021. Apologies, but hope that helps clarify the situation.
The ca.gov website states that if my tax year is less than 15 days and I did not conduct business, I do not pay the fee the following year.
Does that mean I can register my LLC as early as December 15 without paying taxes the following year?
Hi Seth, December 15th to December 31st is 17 days, so the rule wouldn’t apply then. The 15-day rule kicks in for LLCs formed on or after December 17th. Hope that helps.
Thank you for publishing this site, it’s been a great point of reference starting out.
If I begin the filing process for an LLC in CA today, and postmark the formation for Jan. 1, 2021, will I be eligible for receiving the benefit of the new CA 2021 tax exemption?
Appreciated, looking forward to your reply.
Hi Chris, you’re very welcome! You almost correct. It’s not about the postmark date (the date the letter was sent if you’re filing by mail). It’s about using a Future File Date of 1/1/2021 on the California LLC Articles of Organization. In that way, because the LLC will go into existence in 2021, it doesn’t pay an $800 franchise tax payment in 2021. Its first $800 franchise payment will by due by April 15th, 2022. Hope that helps.
With AB85 would it be possible to then:
1. Start an LLC during 2021
2. Dissolve the LLC before end of 2021
3. Refile for new LLC in 2022 and so on until 2023 to avoid excessive $800 fee
I ask this, because as a gig worker, $800 is simply oppressive and the LLC name is not really as important as the protection that it simply provides. That being said, it would not be a problem to simply repeat the process yearly to avoid paying said fees.
Jim, this is a very interesting question. Yes, that could be done. Keep in mind though that each LLC would file a Form 568 every year in California. You’ll also be getting a new EIN each year, opening and closing a bank account, and making sure any payments or expenses are coming into/going out of the correct bank account.