For California income tax purposes, an LLC with more than one member will be classified as a partnership, and an LLC with a single individual member will be treated as a sole proprietorship, unless the LLC chooses to be classified as a corporation for income tax purposes. To be taxed as a corporation, the LLC files an election on IRS Form 8832, Entity Classification Election, with the Internal Revenue Service. California treats the LLC and its owners for income tax purposes in the same manner the LLC is treated for federal tax purposes. See the California Franchise Tax Board’s LLC publication.
- An LLC may have one or more owners, and may have different classes of owners. In addition, an LLC may be owned by any combination of individuals or business entities. An LLC that is taxable as a partnership can achieve both conduit tax treatment and limited liability protection under civil law, similar to an entity taxable as an S corporation. However, an LLC taxable as a partnership does not have the ownership restrictions that apply to entities taxable as S corporations.
- If the LLC has a single member, it will be disregarded as separate from its owner, and will be treated as a sole proprietorship or a division of its owner, unless it elects to be taxable as a corporation. See the FTB’s Sole Proprietorship publication.
- Generally, members of an LLC that are taxed as a partnership may agree to share the profits and losses in any manner. Members of an LLC classified as a corporation receive profits and losses in the same manner as shareholders of a corporation legally organized as such. See the FTB’s Partnership publication.
- All LLCs classified as corporations that organize in California, register in California, conduct business in California, or receive California source income, must file California Form 100. The California Form 100 must be filed by the 15th day of the 3rd month after the close of the LLC’s taxable year. See the FTB’s Corporation publication.
- The LLC will be taxed at the corporate tax rate of 8.84% and will be subject to a minimum tax of $800.
- All LLCs classified as partnerships or disregarded entities that organize in California, register in California, or conduct business in California, must file California Form 568 Limited Liability Company Return of Income. California Form 568 must be filed by the 15th day of the 4th month after the close of the LLC’s taxable year.
- An LLC required to file Form 568 pays an annual tax of $800, and may be subject to an LLC fee based on total income from all sources derived from or attributable to the state of California. The annual tax is due by the 15th day of the 4th month of the taxable year, and is paid using CA Form 3522, Limited Liability Company Tax Voucher.
- In addition, an LLC filing Form 568 which has members who are not residents of California must file FTB 3832, Limited Liability Company Nonresident Members’ Consent with Form 568. FTB 3832 is signed by the nonresident individuals and foreign entity members to show their consent to California’s jurisdiction to tax their distributive share of income attributable to California sources. The LLC must pay the tax for every nonresident member who did not sign a FTB 3832.
If the Limited Liability Company is classified as a corporation and files California Form 100, the following estimated tax guidelines apply.
- The estimated tax is payable in four installments.
- Installments are due and payable on April 15, June 15, September 15, and December 15.
- Corporations complete Form 100-ES to report their estimated taxes.
- Additionally, members may have to make estimated tax payments for their own reporting purposes.
If the Limited Liability Company is classified as a partnership or disregarded entity and files California Form 568, the following estimated tax guidelines apply:
- Estimated LLC fee is due by the 15th day of the 6th month.
- Members may have to make estimated tax payments for their own reporting purposes.
The LLC treated as a partnership may be required to withhold taxes if the partnership distributes California source taxable income to a nonresident member. For more information about partnership withholding, see FTB 1017.
Withholding on Partnerships and Limited Liability Companies
Domestic nonresident partners and members
Partnerships and LLCs must withhold 7% on distributions of California source income made to domestic nonresident partners or members when distributions to a particular partner or member exceed $1,500 for the calendar year.
Partnerships and LLCs that withhold on domestic nonresident partners or members:
- Send the California Franchise Tax Board the withheld amounts using Form 592 – Resident and Nonresident Withholding Statement, and Form 592-V – Payment Voucher for Resident and Nonresident Withholding. See Form 592 instructions for more details.
- Provide resident and nonresident beneficiaries with a Form 592-B, Resident and Nonresident Withholding Tax Statement, at the end of the calendar year to show the total amount distributed to them and the total credit withheld.
Nonresident domestic partners or members can request reduced or waived withholding from us using a paper or electronic Form 589, Nonresident Reduced Withholding Request, or Form 588, Nonresident Withholding Waiver Request. See the form instructions for more details.
Foreign Partners and Members
Partnerships and LLCs must withhold on allocations of California source income to foreign partners and members (payees). Withhold at the maximum California tax rate applicable. For details on tax rates, see instructions on Form 592-A – Payment Voucher for Foreign Partner or Member Withholding.
Partnerships and LLCs that withhold on foreign partners or members:
- Send us the California Franchise Tax Board withheld the amounts using Form 592-A – Payment Voucher for Foreign Partner or Member Withholding.
- Complete Form 592-F – Foreign Partner or Member Annual Return, and send it to us at the close of the taxable year. Form 592-F allows reporting of total withholding for the year and allocates the income or gain and related withholding to foreign partners or members (payees).
- Provide foreign partners and members (payees) with Form 592-B – Resident and Nonresident Withholding Tax Statement at the end of the calendar year to show total amount distributed to them and the total amount withheld.
Foreign partners and members can request reduced withholding from us using a paper or electronic Form 589, Nonresident Reduced Withholding Request. Foreign partners and members cannot request waived withholding from us.
FTB Forms & Publications
The above article is reprinted from an article on the California Franchise Tax Board’s website.