There is No Single “California LLC Tax”
California does not charge a blanket tax for LLCs.
Instead, LLCs may owe several different taxes and fees, depending on:
How the business earns money
How the owner is paid
Whether the business has employees
How much revenue the business generates
Understanding why each tax exists makes compliance manageable.
California $800 Annual Franchise Tax
What it is: A mandatory tax for the privilege of operating as an LLC in California
Key Points:
$800 per year
Owed even if the LLC makes no profit
Applies for every year the LLC exists unless properly dissolved
Administered by the California Franchise Tax Board (FTB)
This tax is based on entity existence, not income.
2. California LLC Gross Receipts Fee (If Revenue Thresholds Are Met)
What it is: An additional fee based on gross receipts, meaning total revenue before expenses.
California sets revenue levels that trigger this fee. If your LLC’s total money coming in reaches one of these levels, the fee applies - even if profit is low.
Example:
Total Income (Revenue) $260,000 = $900 (additional fee owed)
Expenses: $240,000
$20,000
Because the revenue threshold was crossed, the LLC fee may still be owed. This is based on gross receipts, not profit. Expenses do not reduce this fee. Owed even if net income is low or negative. Paid to the California Franchise Tax Board (FTB).
This fee is separate from the $800 franchise tax.
3. Federal & California Income Taxes (Pass-Through Taxation)
How this works for most CA LLCs: By default, LLCs are taxed as pass-through entities
The LLC itself usually does not pay federal income tax
Profit passes through to the owners
Owners report the income on their personal tax returns
Owners pay the income tax
If the LLC elects corporate taxation, different rules apply.
4. Self-Employment Taxes (For Active Owners)
If you actively work in your LLC and are not paid as a W-2 employee, you may owe self-employment tax.
You are not on payroll
No taxes are withheld from payments to you
You take money as owner draws or distributions
You are responsible for paying your own taxes
Self-employment tax covers:
Social Security
Medicare
This tax is separate from income tax and often surprises first-time LLC owners.
5. Payroll Taxes (If the LLC Has Employees)
If your LLC has employees, it must comply with payroll tax requirements.
Payroll taxes are based on wages paid, not profit, and may include:
Federal payroll taxes
California payroll taxes
Employment Development Department (EDD) reporting
Even unprofitable businesses must comply if they pay employees.
6. Sales & Use Tax (If Applicable)
If your LLC sells taxable goods or services, it may need to:
Register with the California Department of Tax and Fee Administration (CDTFA)
Collect sales tax from customers
File periodic returns
You must submit recurring tax filings - monthly, quarterly, or annually - depending on your business activity.
Even if no sales occurred, no tax is owed.
You may still be required to file a return showing zero activity.
7. Local California Business Taxes & Industry Fees
Cities and counties may impose:
Local business taxes
Registration fees
Industry-specific assessments
These vary by location and business type and are often overlooked.
Federal Tax Classifications (how the IRS classifies an entity)
These are the actual IRS tax classifications:
Disregarded entity
Partnership
Corporation
Once something is classified as a corporation for tax purposes, it can be taxed as:
C -Corporation (default)
S-Corporation (by election)
Tax Treatment (the result)
From those classifications and elections, you get
pass through taxation (disregarded entity, partnership, S-Corp)
entity-level taxation (C-Corp)
S-Corporation (Tax Election)
Owners who work in the business are paid W-2 wages
Remaining profits may be distributed
May reduce self-employment taxes
Requires payroll and additional compliance
An S Corporation makes sense when the business is constantly profitable. The owner actively works in the business. The business makes enough to pay the owner a reasonable salary. The owner wants to reduce self-employment taxes. Many S-Corps are solo founders, small agencies, consultants, and service businesses. S-Corps actually have limits: Max 100 shareholders, only certain types of owners allowed.
C-Corporation (Tax Election)
Business pays corporate income tax
Owners may also pay tax on dividends
Often used by large or investment-focused companies
A C-corp is commonly used by
venture-backed startups
Companies seeking investors
businesses planning to reinvest profits
Companies planning to go public
Most larger companies use C-Corps
easier to raise capital
no shareholder limit
can issue different classes of stock
The business pays its own income tax
S-corporations and C-corporations are tax treatments, not indicators of business size. Many small LLCs choose S-corporation (S-Corp) taxation to manage self-employment taxes, while C-corporation (C-Corp) taxation is more commonly used by larger or investor-focused companies.
Most California LLC tax issues come from confusing revenue with profit and assuming one tax covers everything.
Even if
Your taxes were filed
Your business made little money
Your hired help
California may still expect:
the $800 franchise tax
revenue-based fees
periodic filings
Understanding what applies to your LLC is the foundation of staying compliant.
There are three federal tax classifications: Disregarded entity, partnership, and corporation. Corporations are taxed as C-Corporations by default or may elect S-Corp status. Disregarded entities, partnerships, and S Corporations are pass-through entities, while C Corporations are not.
