How California Taxes LLCs in 2025
California is widely regarded as having one of the most complex and expensive LLC tax environments in the United States. LLC owners face a combination of graduated personal income tax rates (the nation's highest top marginal rate at 13.3%), an annual $800 franchise tax, and a unique LLC fee that scales with gross revenue. Understanding these layers is essential for any California LLC owner.
LLCs taxed as pass-through entities have their income flow through to members' personal California tax returns, where it is taxed at the state's nine graduated income tax brackets. The top rate of 13.3% applies to income exceeding $698,271 (single) or $1,396,542 (married filing jointly).
Critical: California imposes the $800 annual franchise tax even if your LLC has zero income or operates at a loss. This tax is due by the 15th day of the 4th month after your LLC is formed, and then annually by April 15. New LLCs formed on or after January 1, 2024 are exempt from the $800 tax in their first year.
California Income Tax Brackets (2025)
| Taxable Income (Single) | Tax Rate |
|---|---|
| $0 - $10,412 | 1% |
| $10,413 - $24,684 | 2% |
| $24,685 - $38,959 | 4% |
| $38,960 - $54,081 | 6% |
| $54,082 - $68,350 | 8% |
| $68,351 - $349,137 | 9.3% |
| $349,138 - $418,961 | 10.3% |
| $418,962 - $698,271 | 11.3% |
| Over $698,271 | 13.3% |
Additionally, California imposes a Mental Health Services Tax of 1% on taxable income exceeding $1 million, effectively creating a 14.4% combined top rate for millionaires.
California LLC Fee Schedule
In addition to the $800 franchise tax and income tax, California imposes an LLC fee based on the LLC's total income (gross revenue from California sources):
| Total California Income | LLC Fee |
|---|---|
| Under $250,000 | $0 |
| $250,000 - $499,999 | $900 |
| $500,000 - $999,999 | $2,500 |
| $1,000,000 - $4,999,999 | $6,000 |
| $5,000,000 and above | $11,790 |
Warning: The LLC fee is based on total income (gross revenue), not net income or profit. This means an LLC with $500,000 in revenue but only $50,000 in profit would still owe the $2,500 LLC fee. This is one of the most criticized aspects of California LLC taxation.
California's $800 Franchise Tax
Every LLC registered in California must pay the $800 annual franchise tax to the California Franchise Tax Board (FTB). Key points:
- Due date: April 15 annually (or the 15th day of the 4th month after formation in the first year)
- No income required: Owed even if the LLC earns no revenue
- First-year exemption: LLCs formed on or after January 1, 2024 are exempt from the $800 franchise tax in their first taxable year
- Payment method: FTB Form 3522 or online through the FTB website
- Late penalty: 5% of unpaid tax per month, up to 25%, plus interest
Federal Taxes for California LLCs
- Self-Employment Tax: 15.3% (12.4% Social Security on income up to $176,100 plus 2.9% Medicare on all income). Additional 0.9% Medicare surtax above $200,000/$250,000.
- Federal Income Tax: 10% to 37% based on total taxable income
- Quarterly estimated payments: Due April 15, June 15, September 15, January 15
- QBI Deduction: Up to 20% of qualified business income under Section 199A
California Sales and Use Tax
- State sales tax: 7.25% (highest state base rate in the US)
- Local additions: Up to 3.5% additional
- Average combined rate: 8.68%
- Los Angeles combined rate: 9.5%
- San Francisco combined rate: 8.625%
- Highest combined rate (some areas): 10.75%
California LLC Formation and Annual Costs
- Articles of Organization (Form LLC-1): $70
- Annual franchise tax: $800 (exempt first year for new LLCs since 2024)
- LLC fee: $0 to $11,790 based on gross revenue
- Statement of Information (Form LLC-12): $20 (due within 90 days of formation, then every 2 years)
- Agent for Service of Process: Required; can designate an individual or commercial agent
California Pass-Through Entity Tax (PTET)
California offers a Pass-Through Entity Tax election under AB 150. The PTET allows qualifying LLCs to pay a 9.3% tax at the entity level, with members receiving a corresponding credit:
- The tax rate is 9.3% of qualified net income
- Members receive a nonrefundable credit on their individual returns
- The election must be made annually and is irrevocable for that year
- Payments are due quarterly: June 15, September 15, December 15, and March 15
- This effectively works around the federal $10,000 SALT cap
California LLC vs. Other High-Tax States
| State | Top Income Rate | Franchise/Annual Fee | Sales Tax |
|---|---|---|---|
| California | 13.3% | $800 + LLC fee | 7.25% |
| New York | 10.9% | $25-$4,500 | 4% |
| New Jersey | 10.75% | $0 | 6.625% |
| Oregon | 9.9% | $100 | 0% |
| Minnesota | 9.85% | $0 | 6.875% |
| Massachusetts | 9% | $500 | 6.25% |
| Hawaii | 11% | $0 | 4% |
Filing Deadlines for California LLCs
- Personal income tax (Form 540): April 15
- Partnership return (Form 565): March 15 (multi-member LLCs)
- LLC franchise tax (Form 3522): April 15
- LLC fee (Form 3536): Due by the 15th day of the 6th month of the current tax year (June 15 for calendar-year LLCs)
- Estimated tax payments: April 15, June 15, September 15, January 15
- Statement of Information: Within 90 days of formation, then biennially
Strategies to Reduce California LLC Taxes
- Maximize business deductions: Ensure all ordinary and necessary expenses are properly documented and deducted
- Consider S-Corp election: For LLCs with significant net income, electing S-Corp status can reduce self-employment tax
- Use the PTET election: If you are affected by the SALT cap, the pass-through entity tax can provide meaningful savings
- Retirement contributions: SEP IRA (up to $69,000) or Solo 401(k) contributions reduce taxable income
- Health insurance deduction: Self-employed health insurance premiums are deductible
- QBI Deduction: Maximize the 20% qualified business income deduction
- Timing strategies: Defer income or accelerate deductions near year-end to manage bracket exposure
Common Mistakes California LLC Owners Make
- Forgetting the $800 franchise tax: This is owed even if your LLC has no income
- Confusing LLC fee with franchise tax: These are two separate obligations; the LLC fee is based on gross revenue
- Missing the LLC fee estimated payment: The LLC fee estimate is due June 15, earlier than many expect
- Not understanding nexus rules: California aggressively asserts nexus; even remote sellers may owe California taxes
- Failing to file Form 568: All California LLCs must file Form 568 (LLC Return of Income) annually, even if no tax is due
- Operating as a foreign LLC without registration: LLCs formed in other states but doing business in California must register and pay the franchise tax