California Minimum Franchise Tax $800 - What You Need To Know
Updated on July 27, 2023 by Tim Donahue
Guide to Paying the $800 California Minimum Franchise Tax
Starting a business in California brings with it a wave of exciting opportunities, but it also comes with certain financial obligations. One such requirement that often catches new business owners by surprise is the annual California Minimum Franchise Tax. Let’s break down what this $800 annual tax really means for you and your business.Table of Contents
- $800 Minimum Franchise Tax
- Understanding the State of California Minimum Franchise Tax
- Who is required to pay?
- First year exemption through 2023
- When and How to Pay?
- Exemptions and Exceptions
- Consequences of Non-payment
- Frequently Asked Questions
What is the “$800 Minimum Franchise Tax”?
The $800 Minimum Franchise Tax is a fee that the State of California charges to all corporations, limited partnerships, and LLCs that do business within the state. This tax is levied regardless of the company’s profit or activity levels, and is due every year.Understanding the “State of California Minimum Franchise Tax”
Established to provide consistent revenue for state-level public services, the $800 Minimum Franchise Tax ensures every business entity contributes to the state’s economy, irrespective of their income. The funds from this tax help support infrastructure, public safety, education, and more.Who is required to pay the “California Minimum Franchise Tax”?
All businesses registered to operate in California, including corporations, limited liability companies, and limited partnerships, must pay this tax – except for Sole Proprietorships and General Partnerships. Even if your business isn’t actively trading or making a profit, you’re still required to pay the tax as long as your business is registered.First tax year exemption! You don’t need to pay the $800 during your first tax year
Newly formed business between Jan 1 2021 and Jan 1 2024 have an exemption during their first tax year as per a new Calif State Bill called AB 85. This means you don’t need to pay the $800 during your first tax year, which is normally Jan 1st to Dec 31st of the year in which you began operating. Read more on this here: AB 85 First Year California Minimum Franchose Tax ExemptionWhen and How to Pay the “$800 Minimum Franchise Tax”?
The $800 Minimum Franchise Tax is due by the 15th day of the fourth month of the tax year. For most businesses, this will be April 15th. Payments can be made online through the California Franchise Tax Board’s website. Normally you will receive a notification by mail from the Franchise Tax Board about 60 days before your California Minimum Franchise Tax is due.Exemptions and Exceptions to the “State of California Minimum Franchise Tax”
There are a few exceptions to the Minimum Franchise Tax. For instance, businesses in their first year of operation are exempt from the tax. Nonprofits, Sole Proprietorships, General Partnerships, credit unions, and certain types of trusts are also exempt. It’s important to consult with a tax professional to understand if your business qualifies for any exemptions.Consequences of Not Paying the “$800 Minimum Franchise Tax”
Failure to pay the Minimum Franchise Tax can lead to penalties, interest, and even the dissolution of your business entity by the state. Timely payment is crucial to avoid these repercussions and to keep your business in good standing with the state.Frequently Asked Questions
Questions abound when it comes to taxes. Here are a few common ones related to the California Minimum Franchise Tax.- What if my business makes no money or is inactive? – Even if your business is inactive or doesn’t make a profit, you still owe the $800 tax if you’re registered in California.
- Can I deduct the Minimum Franchise Tax? – Yes, the $800 tax can typically be deducted on your business income tax return.
- What if I miss the payment deadline? – If you miss the payment deadline, you’ll likely owe a late penalty plus interest on the amount due.
