Franchise taxes are due by April 15th of each year for most entities doing business in California. Corporations incorporated or doing business in California, and LLCs and Limited Partnerships electing to be treated as corporations for tax purposes, must pay this tax. Additionally, it is due regardless of whether the entity is active, operates at a loss, or does not conduct business. Some qualified corporations, including corporations in their first year of business, are exempt from this tax (for more information see this blog post).
Calculating Estimated Franchise Tax
The minimum franchise tax is $800. Corporations can calculate their estimated tax by multiplying their estimated net income by the applicable rate (i.e. C Corporations: 8.84%, S Corporations: 1.5%).
Payment of Estimated Franchise Tax
If the amount of the estimated tax does not exceed the minimum franchise tax of $800, the $800 is due by April 15th. If the amount of the estimated tax exceeds $800, the estimated tax can be paid in the following installments:
- 30% for the first installment, due April 15th;
- 40% for the second installment, due June 15th;
- No estimated tax payment is required for the third installment, due September 15th;
- 30% for the third installment, due December 15th.
The estimated tax amount can be paid online here. It can be paid by check or money order by mailing in this form (corporations) or this form (LLCs) to the California Franchise Tax Board.
Effect of Payments
The paid estimated taxes are considered a prepayment of the tax due at the end of the year, and can be claimed as a credit when filing the corporation’s state tax return. Since the taxes paid are based on estimated net income, any overpayment will be credited towards the first payment in the following year.
This article discusses general issues surrounding franchise taxes within California. You are encouraged to speak with a business attorney or CPA to discuss your specific situation. For all inquiries please contact us at info@bendlawoffice.com or (415) 633-6841.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.