CA LLC Confusion

[dsi]

Any help would be greatly appreciated on this subject. For purposes of this question, assume this is a disregarded entity...a SMLLC in CA.

CA will be looking for a form 568. O.K., no problem so far. The IRS will be looking for income and expenses to be reported on the individual's 1040, either on Sch's C, E, of F. Again, no problem.

However, will CA also be looking for income and expenses on the indidual's CA form 540? Or is it simply all reported on the form 568 and that's that?

[DTS]

David

If I understand your question correctly, you will file 568 for the LLC and then the numbers from the K-1 will just flow to the Sch CA 540.

Add'l: I believe you are asking whether a 540 is needed if you file a 568. I believe it is. My software doesn't give the option of filing that alone. You can opt to file an single-person entity on the 540 only, but if it's an LLC, you need to file the 568. All the LLCs I do are filed on 1065, 568 and then the 540.

Dennis

[dsi]

Thanks Dennis. It appears that CA is getting tax on the same income twice? Once at the LLC level (form 568), AND again on the individual level on the 540?

[Roland Slugg]

Corrected information

Dennis's (DTS) reply above is incorrect. I suggest you read the applicable portion of the instructions for California's F-568 Booklet, which you may access by clicking here:

http://www.ftb.ca.gov/forms/07_forms/07_568bk.pdf

The information on the bottom half of the R/H column on p.8 will answer your question.

The income is not taxed twice, per se. However, California imposes an annual tax of $800 on every LLC organized or doing business in the state. In addition to that tax it also imposes an annual fee on an LLC if its gross receipts are $250,000 or more. "Gross receipts" means just that ... not even COGS is allowed as a deduction when figuring the LLC fee. That fee ranges from $900 to $11,790 and can easily exceed an LLC's annual net income. You may read about the annual LLC fee in the same booklet, on p.5.

Personal opinion and comment: The California annual LLC tax and fee could be an expensive awakening to those who form LLCs in California or do business in that state via an LLC formed in another state. Those who think LLCs are such nifty creatures may wish to take note.

[dsi]

Thanks Rolland. I will read this thing tonight.

[DTS]

568

David,

Now I'm thoroughly confused about the 568. I apologize to you for my misspoken advice!

After reading the instructions on pg. 8, Roland is right about the K-1. Having said that, I don't know how to even fill out the 568, if it is needed in this situation, without being in the 1065 module, which won't allow a SMLLC. Pg. 8, sounds like they want it filled out, but I can't access it unless in the 1065.

Roland, please jump in here and clarify for me. FTB wants the 568 w/s filled out, but nothing put on the 568, only on the 540??

I have one SMLLC and for several years have filed her on 1040 C and 540, she pays her $800 yearly. My confusion this morning was that I remember seeing the election on the input screen to choose "sole owner" and I always filed her on the 540, without the 568.

Dennis