Asked in Business Formation, Business Law and Tax Law for California

Q: Do I have to pay the CA franchise and file annual income tax for a newly formed single member LLC with no income?

Hello

I created a new LLC last July and I'm the only member.

So far the LLC has not been operative and has generated no revenue.

Do I need to file an income Tax return or pay the $800 California Franchisee tax?

Thank you.

3 Lawyer Answers
Julie King
Julie King
Answered
  • Monterey, CA
  • Licensed in California

A: Unfortunately , yes, you have to pay that franchise tax regardless of whether your LLC is active or inactive. So long as the LLC is in existence, you must pay the annual tax. Some people make the mistake of only paying the tax when they earn an income, which causes the LLC to go into "FTB Suspended" status, which means that the LLC may not transact business until all back taxes are paid. It is much better to dissolve the LLC and re-create a new LLC once you want to transact business if you do not plan to use the LLC any time soon.

Jonathan Purcell
Jonathan Purcell
Answered
  • Tax Law Lawyer
  • PETALUMA, CA
  • Licensed in California

A: Your LLC must pay the annual franchise fee of $800, file federal and state taxes, as well as quarterlies.

Failure to fulfill your obligation will result in interest and penalties, interest on penalties, and penalties on interest. It is a good idea to get a book keeper to fulfill the filing requirements.

If it seems your business adventure is not likely to be successful, you might conclude your LLC's relationship with the IRS and FTB as soon as possible to avoid further fees and filings.

This posting does not create any attorney-client relationship. The information presented here is general in nature and is not intended nor should be construed as legal advice for any particular case or client. For specific advice about your particular situation, please consult with your own attorney. This posting is not intended to constitute an advertisement or a solicitation.

David S. Greenberg
David S. Greenberg
PREMIUM
Answered
  • Tax Law Lawyer
  • San Diego, CA
  • Licensed in California

A: Yes, you need to file a return and pay the $800 minimum tax.

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