It isn't an $800 charge, it is a minimum of $800 in state tax. For an actual business with $20k in revenue the cost is much lower than $800, maybe zero
The $800 fee is a minimum tax for the year, not an arbitrary fee, it is credited against other taxes you owe. To that end, most businesses with employees or substantial sales won't owe anything extra. It is waived the first year in most cases, so it isn't a short term problem for new businesses. There are other business structures for a company besides an LLC if costs like the registered agent, the tax complexity, the minimum franchise tax are an obstacle.
$800 is a lot of money for someone pretending at business but it's a trivial cost for a real business actually earning money.
And that's the point. It's a filter to weed out those that can't afford $800/year or aren't serious enough about their business activities to put up with the expense.
Why was this downvoted by people. Seriousquestion raises a good point. $800 a year is a massive cost. Lets say the llc is a cleaning service, and they are only pulling in $20k a year anyways. Operating as an LLC is 1/20th of their income to do it legally. This is a valid point, and is on topic.
Based on how it was said, I assumed corporate taxes. So sure, you need to pay your 800 bucks to the state of California (if you even operate here), and a couple points for payroll tax.
But it's just the sentiment I don't like. If young entrepreneurs give themselves trumped up titles and dream of grandiose things, that doesn't disgust me at all. Perhaps a wry smile, along with some encouragement.
In CA, if your gross under a certain revenue, you owe a base amount in taxes ($800 in taxes + your biz license and other fees). If you are over a certain revenue, then you owe a percentage (which comes out to equal or greater than the $800 + biz license and fees). [1]
This sucks a lot for small side businesses/projects, most of which may not even make $800 in the first year. It's a very anti-small business law/tax, which is why a lot of internet based companies incorporate out of state like Nevada where their tax liability is significantly lower or none at all.
Sure, but that doesn't really justify the fees. I keep hearing from Americans that we in Scandinavia are so heavily taxed. Very strange from me to hear about a $800 minimum tax fee. Also, not every company is a high flying startup. It might be a small hairdresser salon. $800 isn't pocket change for a small biz. In my case I have a company that has pretty much been inactive for many years as it just exists to have stocks in my previous and current startup. Wouldn't be happy about spending $800/year to keep it alive.
I did not downvote the comment, but I do find it a little silly, so here I go:
1. Assuming your business is going to employ anyone at all, $800 is only 1-2 weeks of pay even at minimum wage.
2. I am not aware of any type of business California has forced to shut down completely (i.e. literally no way of making money) for the entire year.
3. If this business is just a side project you're trying out on top of your main job and it fails, you can disband it within 1 year of creation and are exempt from the fee (Source: https://www.ftb.ca.gov/file/business/types/limited-liability... - See section "Short form cancellation").
We could argue about whether it discourages starting small business in California, or if the CA government should have waived the fee this year to help with COVID-19; but acting like this is some insane requirement that is killing small businesses is ridiculous. Business that cannot afford this fee are already failing and almost certainly can't even afford to pay their employees. (For the record, I find it to be a pretty regressive tax, and should just be reduced to whatever overhead exists for managing LLC filings.)
From personal experience: Hiring your designer buddy who lives in San Diego while the two other guys in your company lives elsewhere entitles you to pay $800 a year in somewhat unexpected tax, even though you're not selling any services to any CA companies. Yea, jumped in feet first, but really did not enjoy the $800 bill that came with it.
So even if you have no income or a loss, you still have to pay $800 tax. That seems ridiculous. Many have said that the term "tax" is inappropriate and instead should be a fee (which can be tax deductable), but wait! There's more. There is also a LLC fee which is waived for <$250k revenue but increases there after. Note - all this taxation and fees is in addition to state income taxes. Experts also say that the "LLC Fee" should be called "LLC Tax". California has an absurd level of taxation for someone who wants to open "Hannah's Illustration & Painting LLC".
Given how it works in states like Nevada and Arizona ($50 flat one time fee, no minimum LLC tax or fees), California goes on a limb to intentionally make sure your little LLC suffers as much as possible: http://www.incorporatecalifornia.com/callctax.html
> As a small business the value of protection you receive from the state is incalculably larger than the price you pay.
Unless you are in CA and are a small or side business with little revenue (thinking side consulting gigs, etc).
The minimum tax liability + biz license and other fees (base tax of $800 or more depending on revenue + biz license + other fees) quickly makes it not worth incorporating in CA if you can avoid it. That is, unless you are making more than a few thousand a year from your side gig.
Even if it is automated, that is an $800 out of pocket expense every year for LLC fees, and more complex accounting requirements. It's not worth the effort unless you are making significant money or are serious about your business
Small business can't always just write a check to solve their problems. My buddy just charged the standard state tax for instance, when selling books online, then at tax time he figured out how much he'd undercharged in taxes and paid it himself. Done that way its definitely a 'small business tax'.
Yeah, for anyone reading who needs to read this: don’t do this. Unless you’re running a legitimate business, this is blatant tax fraud.
Also $800/yr in California? You people are being ripped off. LLCs aren’t laid any fees to maintain annually in Arizona, and they’re perpetual entities.
No, it’s really not - you’re either forgetting or are unaware of payroll taxes, insurance, etc. not to mention rent, electricity, capital expenses, and every other expense needed to run a business come out of that $1m.
Honestly, this is pretty normal, if aggravating. When I moved to TX, a registration for an out of state LLC was $750. The registration system required a credit card up front to levy a $1 charge for every name search on a web forum to ensure the business name didn't conflict with an existing entity. Though, they will refund those fees if registration occurs. After registration, I spoke with the comptroller and they told me to register for sales tax and that would be the only tax paid. A year later, I received an angry letter from the secretary of state that I owed gross receipts tax and their estimated payment was over $1000. After some investigation, I discovered that this tax was only levied on revenue of over $1 million and TX knew precisely what I had made because of the sales tax filings and they significantly under that amount. Further, it's unclear to me why there are two different departments levying taxes in TX and why the first wouldn't give a heads up about the second. Additional filings made the problem go away.
The point is not that this situation is the exact same as yours. The point is that each state has bizarre, unintuitive tax and employment law. Even if you ask, you'll likely get incorrect information from the state until an angry letter shows up. As long as your paperwork is organized, these problems can be made to go away. This is the cost of running a business. It should be easier, but it's not. Some states are easier to work with than others. Even "business friendly" states like TX are aggravating and much more so than other states that I've done business in.
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