Starting a business in California is an exciting proposition, but you had better be aware of the taxes you might have to pay.
Here’s a little taste. Just for the business entity itself, California has a franchise tax, a corporate income tax and an alternative minimum tax. Your business may be subject to one, or more, of these taxes. It depends on the amount of taxable income and the business entity type you elected.
Don’t set up your business before you talk to an accountant or you could end up paying too much in taxes. Schedule a no-obligation consultation with an expert from 1-800Accountant.
But that’s not all. If any income from the business passes through to you as an owner, you will have to claim it on your personal California state tax return.
Business Franchise Tax
When you are starting a business in California, it’s a given that you will be paying a franchise tax. California’s franchise tax is basically a tax on doing business in the State. It applies to C corporations and S corporations. It also applies to Limited Partnerships (LPs), Limited Liability Partnerships (LLPs), and Limited Liability Companies (LLCs).
For S corporations, the franchise tax is 1.5% of the corporation’s net income with a minimum tax of $800. For standard LLCs, the franchise tax is a flat fee rather than a percentage rate. The fee varies depending on total income coming from California.
Sales Tax for Your California Business
If you are a merchant in California, you will need to register to collect and report Sales tax on the goods you sell. Depending on you locality, you might also need to collect a county or city sales tax as well.
California’s Transient Occupancy Tax
If you operate a motel, hotel, vacation property or even a campground, you may have to pay even more taxes. If you rent property for someone to stay in for fewer than 30 consecutive days, you will need to register and collect the transient occupancy tax.
California also requires you submit a Periodic Statement of Information, which includes a $25 fee. You are required to file a new statement every two years.
