On this page
- What is the California LLC franchise tax?
- Do new LLCs have to pay the $800 in year one?
- When is the $800 franchise tax due?
- What if my LLC makes more than $250,000?
- How does the franchise tax interact with income taxes?
- What happens if you miss a payment?
- Do I need a bookkeeper just for this?
- Does California's franchise tax apply to out-of-state LLCs?
- Frequently asked questions
- Related reading
California LLC Franchise Tax: What New Business Owners Actually Owe
Every California LLC owes the state a minimum $800 annual franchise tax โ separate from your income taxes, due whether or not the business made a dollar. Here's what that means, when it's due, and the one exception that catches most new owners off guard.
What is the California LLC franchise tax?
The California Franchise Tax Board (FTB) charges LLCs an annual minimum tax of $800. It's not a penalty tied to profit โ it's a fee for the right to operate as an LLC under California law.
This is entirely separate from federal and state income taxes. A slow year with zero revenue doesn't get you off the hook. Many new owners assume that if the business didn't make money, there's nothing to pay. That assumption leads to surprise bills and FTB penalties.
Do new LLCs have to pay the $800 in year one?
Not automatically. California grants a first-year exemption from the $800 minimum franchise tax for LLCs formed on or after January 1, 2021. If your LLC was formed after that date, you skip the $800 for your first tax year โ but only the first.
Starting in year two, the $800 is due every year without exception. The exemption reduces the upfront cost of launching a new entity, but it doesn't buy more than one year of relief. If you're unsure whether your formation date qualifies, pull your Articles of Organization from the California Secretary of State and confirm with a tax professional.
When is the $800 franchise tax due?
For calendar-year LLCs, the annual $800 minimum is due by April 15 โ the 15th day of the fourth month of the taxable year. You pay it using Form 3522 (LLC Tax Voucher), submitted to the FTB.
The part people miss: if your LLC formed mid-year, the clock starts from your formation date, not January 1. That can push the first payment deadline to an unexpected month. Count four months forward from your formation date and mark it.
What if my LLC makes more than $250,000?
The $800 is a floor, not a ceiling. California charges an additional LLC fee once total income from California sources crosses $250,000. The fee scales with income:
| Annual Income | Additional Fee |
|---|---|
| $250,000 โ $499,999 | $900 |
| $500,000 โ $999,999 | $2,500 |
| $1,000,000 โ $4,999,999 | $6,000 |
| $5,000,000 and above | $11,790 |
This additional fee is estimated and paid during the year using Form 3536 (Estimated Fee for LLCs). If you're approaching any of those thresholds, catching it mid-year matters โ a surprise $2,500 or $6,000 bill at filing is avoidable with good tax planning in place.
How does the franchise tax interact with income taxes?
The $800 is deductible as a business expense on your federal return, which reduces federal taxable income in the year you pay it. It doesn't offset the cost entirely, but it reduces the net sting.
For federal purposes, single-member LLCs are disregarded entities by default โ income flows to Schedule C on your personal return. Multi-member LLCs default to partnership treatment. Neither arrangement changes what you owe the FTB.
Some LLCs elect S-corporation status via Form 2553 to reduce self-employment tax exposure. That election doesn't eliminate the California franchise tax โ the $800 still applies regardless of federal tax treatment. If you're weighing an S-corp election, the full picture of S-corp tax planning goes well beyond federal SE tax savings.
What happens if you miss a payment?
The FTB charges late-payment penalties and interest on unpaid franchise taxes. More seriously, the FTB can suspend an LLC that falls behind โ and a suspended LLC loses the ability to sign contracts, open bank accounts, or prove good standing to lenders and clients.
Reinstating a suspended California LLC means paying all back taxes, penalties, and a reinstatement fee. The process takes time and costs more than prevention. If your LLC is already behind or you've received FTB notices, tax problem resolution can help you work through back balances and get the entity reinstated cleanly.
Do I need a bookkeeper just for this?
You don't need one to write a $800 check, but you probably do need one to know whether you're approaching the additional fee thresholds mid-year. Accurate books are also what protect you if the FTB ever questions your income figures.
If your LLC is generating consistent revenue, monthly bookkeeping gives you real-time visibility โ so a threshold crossing doesn't sneak up on you in April. Clean books also lower the cost of preparing your annual return.
For owners who want structured financial oversight alongside tax management, a fractional CFO can help you model tax obligations against cash flow without the cost of a full-time hire.
Does California's franchise tax apply to out-of-state LLCs?
Yes, with some nuance. An LLC formed in another state โ Nevada, Wyoming, Delaware โ that is doing business in California is generally required to register with the California Secretary of State and pay the franchise tax. California's definition of "doing business" is broad: it can include having employees, customers, or revenue sourced from California.
Operating under a foreign LLC registration does not exempt you from the $800. If you're running a multistate business and aren't certain whether you have California nexus, clarify before assuming you're off the hook.
Frequently asked questions
Is the $800 California LLC franchise tax deductible?
Yes. The $800 annual minimum is deductible as a business expense on your federal income tax return, reducing federal taxable income for the year you pay it. It is not deductible against California taxable income for purposes of calculating the additional LLC fee.
Do I owe the $800 if my LLC had no income?
Yes โ the minimum applies regardless of revenue or profit. The only exception is the first-year exemption for LLCs formed on or after January 1, 2021, which waives the $800 for the initial tax year only. After that, the annual $800 is unconditional.
Can I avoid the California franchise tax by forming my LLC in another state?
Not if you're operating from California. If the LLC conducts business in California โ employees, clients, or income sourced here โ you typically must register and pay the $800 regardless of where the entity was formed. Domestic vs. foreign registration affects paperwork, not the tax obligation.
What forms do I use to pay?
Use Form 3522 (LLC Tax Voucher) for the annual $800 minimum. If your LLC income exceeds $250,000, file Form 3536 (Estimated Fee for LLCs) during the year to pay the additional fee. Both go to the California Franchise Tax Board.
When should I talk to a tax professional about my LLC's California obligations?
Before forming the LLC if possible โ or at the very latest, in your first year of operations. Booking a free consultation early lets you map out the franchise tax, self-employment tax exposure, and any S-corp election tradeoffs before they become surprises at filing time.
This article is general educational information about California tax rules, not personalized advice for your specific situation. Tax thresholds and rules change โ verify current figures with the California Franchise Tax Board or a qualified tax professional before acting.
