Forming an LLC in California at the End of the Year
Many new business owners wish to launch their businesses in the new year. However, the legalities needed to get started can complicate the process. When forming an LLC in California, you must pay an annual minimum franchise tax to the state on an annual basis. That minimum tax is $800 in addition to standard income taxes. The first franchise tax is due on the 15th day of the fourth month after the LLC formation. For example, if you were to form your LLC in July, the fourth month of operation would by November. The $800 franchise tax would be due on November 15th.
This is why I talk to many clients who simply wish to open their LLC in the new year. Obviously this is a business decision. If you have people waiting for you to launch your biz, then you probably wouldn’t delay. Get that money, money, money.
The good news is that California offers some carve outs to those who file at the end of the year. If you form your LLC on, or after, December 17th, you are not required to pay the annual minimum franchise tax. Therefore, if you wish to get your business off the ground in the new year or simply want to make your biz an LLC or S Corp in the new year, then you can take advantage of the carve out to save some cash and get the process moving.
Not sure if CA is the right place to form your LLC? Don’t sweat it. I have a blog on that too.