Cliff Beacham CPA | email cliffbeacham@cpa.com | California |  Tel: (949) 813-1349 
Cliff Beacham Tax and Business Consulting Certified Public Accountants
LLC Taxes
LLCs combine traditional corporate and partnership characteristics. LLC members are afforded all of the following: •  Limited liability with the extent of a member’s liability limited to the member’s equity investment. •  Flexible management alternatives               •  Liberal membership qualification requirements LLCs may be classified for tax purposes as: 1. a partnership, 2. a corporation, or 3. a disregarded entity. LLCs classified as partnerships for tax purposes generally will determine their California income, deductions, and credits under the Personal Income Tax Law. An LLC must file the appropriate California tax return for its classification and its is classified as a:    •  Partnership file Form 568 (not 565), Limited Liability Company Return of Income    •  General corporation file Form (1120 and 100), California Corporation Franchise or Income tax Return    •  Disregarded entities, see Check-the-Box Regulations Partnerships and LLCs are conducting business in California if they have a general partner or member doing business on their behalf in California (and vice versa) While an LLC does not pay tax, it does pay a fee (called a Franchise fee) and the FTB (Franchise Tax Board) may request copies of Federal or State returns The default of an LLC is to be taxed either as a ‘diregarded entity’ or a Partnership, however it can elect (within 90 days) to be taxed as a corporation (C Corp). If no such election is made then it will default to an individual or a partnership depending on the number of members of the LLC If a partnership converts to an LLC during the year then the partnership has to file a 565 for the part of the year that they were a partnership and a 568 for the part of the tax year that they were an LLC Form 568 is used to: •  Determine the LLC fee (including a disregarded entity’s fee) based on total California income •  Report the LLC fee •  Report the annual tax •  Report and pay any nonconsenting nonresident members’ tax •  Report income, deductions, gains, losses, etc., from the operation of a multiple member LLC that has elected to be classified as a partnership. If an LLC elects to be taxed as a corporation for federal tax purposes, the LLC must file Forms 100/100S/100- ES/100W, FTB 3539, and/or FTB 3586 Exceptions to Filing Form 568:   The LLC elected to be taxed as a corporation for federal tax purposes.   The LLC is a single member limited liability company (SMLLC) that was treated as an association taxable as a corporation prior to January 1, 1997, for California tax purposes, and did not elect to change that tax treatment in the current taxable year.   Nonregistered foreign LLCs (excluding disregarded entities/single member LLCs) that are not doing business, but are deriving income from California or filing to report an election on behalf of a California resident, file Form 565.   A single-member, nonregistered foreign LLC classified as disregarded which is not doing business in California does not file Form 568. Form 540 still applies to people who own SMLLC’s There are many entries in a tax return and just because yo own an LLC does not mean you do not have to submit a Form 540 (California State Tax Return) for an individual. First, the 568 goes to the FTB not the IRS The LLC’s filing requirement will be satisfied by doing all of the following: 1.   Completing Form 568 with all supplemental schedules 2.   Completing and attaching California Schedules K-1 (568) for members with California addresses 3.   Writing “SB 1106 Filing” in red at the top of Form 568, Side 1 4.   Entering the total number of members in Question K on Side 2 of the Form 568 When and Where to File An LLC must:    1.    file Form 568    2.    pay any nonconsenting nonresident members’ tax    3.    pay any amount of the LLC fee owed that was not paid as an estimated fee with form FTB 3536 by the 15th day of the 4th month  of its fiscal year following the close of its taxable year - which is April 15, 2016 of a calendar year. Note: Do not mail the $800 annual tax with Form 568 use form 3522 In addition to the annual tax, every LLC must pay a fee if the total California annual income is equal to or greater than $250,000. The fee is: Equal to or over –  but not over –           $     250,000    $  499,999   $  900    500,000       999,999    2,500 1,000,000       999,999    6,000 5,000,000   and over  11,790 S  Check-the-Box Regulations California generally conforms to the federal entity classification regulations (commonly known as “check-the- box” regulations). These regulations allow certain unincorporated entities to choose tax treatment as:    1.     a partnership,    2.     a corporation, or    3.     a single member LLC (SMLLC)  Generally, any elections made for federal purposes under the federal “check­the-box” regulations are treated as California elections. No separate elections are allowed. If federal Form 8832, Entity Classification Election, is filed with the federal return, a copy should be attached to the electing entity’s California return for the year in which the election is effective. The entity should file the appropriate California return. An “eligible entity” may choose its classification. An eligible entity is a business entity that is not a trust, a corporation organized under any federal or state statute, a foreign entity specifically listed as a per se corporation, or other special business entities. Other special business entities under the IRC include publicly traded partnerships, REMICs, financial asset securitization investment trusts (FASITs), or regulated investment companies (RICs). An eligible entity with two or more owners will be a partnership for tax purposes unless it elects to be taxed as a corporation. For tax purposes, an eligible entity with a single owner (SMLLC) will be disregarded and its activities are treated as activities of the owner and reported on the appropriate California return which is the 540 with a schedule C - equivalent to the Fed 1040 with Schedule C - just like a sole proprietor. LLC - Single member (SMLLC) The form 568 should be partially completed Sides 1, 2 and 6. The Franchise fee is paid on Form 3522 LLC - Multi-member partnership The form 568 should be completed in full for the Partnership - the Franchise fee is paid on Form 3522 LLC - elected as C-corporation The form 100 or 100S should be completed in full for the Corporate LLC - the Franchise fee is paid on Form 3522 A corporate LLC (classified as a corporation) is taxed at the corporation rate, and it is not subject to the fee or filing of the Schedule K-1, Schedule T, Schedule EO either
Call Cliff at (949) 813-1349
Cliff Beacham CPA | email cliffbeacham@cpa.com | California | Tel: (949) 813-1349
Cliff Beacham Tax and Business Consulting Certified Public Accountants
LLC Taxes
Since we are considering LLC taxes and fees Tax Return Form Numbers    LLC   Depends Pass - through unless opt for Corporation (Form 8832)   An LLC can be taxed as:                                                            Fed Form    Individual 1040 Schedule C   Multi-partners    Corporation 1120 Corporation tax  and tax on distributions (Dividends)    S Corp 1120S Pass - through    Partnership 1065 Pass - through
LLCs combine traditional corporate and partnership characteristics. LLC members are afforded all of the following: •  Limited liability with the extent of a member’s liability limited to the member’s equity investment. •  Flexible management alternatives               •  Liberal membership qualification requirements LLCs may be classified for tax purposes as: 1. a partnership, 2. a corporation, or 3. a disregarded entity. LLCs classified as partnerships for tax purposes generally will determine their California income, deductions, and credits under the Personal Income Tax Law. An LLC must file the appropriate California tax return for its classification and its is classified as a:    •  Partnership file Form 568 (not 565), Limited Liability Company Return of Income    •  General corporation file Form (1120 and 100), California Corporation Franchise or Income tax Return    •  Disregarded entities, see Check-the-Box Regulations Partnerships and LLCs are conducting business in California if they have a general partner or member doing business on their behalf in California (and vice versa) While an LLC does not pay tax, it does pay a fee (called a Franchise fee) and the FTB (Franchise Tax Board) may request copies of Federal or State returns The default of an LLC is to be taxed either as a ‘diregarded entity’ or a Partnership, however it can elect (within 90 days) to be taxed as a corporation (C Corp). If no such election is made then it will default to an individual or a partnership depending on the number of members of the LLC If a partnership converts to an LLC during the year then the partnership has to file a 565 for the part of the year that they were a partnership and a 568 for the part of the tax year that they were an LLC Form 568 is used to: •  Determine the LLC fee (including a disregarded entity’s fee) based on total California income •  Report the LLC fee •  Report the annual tax •  Report and pay any nonconsenting nonresident members’ tax •  Report income, deductions, gains, losses, etc., from the operation of a multiple member LLC that has elected to be classified as a partnership. If an LLC elects to be taxed as a corporation for federal tax purposes, the LLC must file Forms 100/100S/100- ES/100W, FTB 3539, and/or FTB 3586 Exceptions to Filing Form 568:   The LLC elected to be taxed as a corporation for federal tax purposes.   The LLC is a single member limited liability company (SMLLC) that was treated as an association taxable as a corporation prior to January 1, 1997, for California tax purposes, and did not elect to change that tax treatment in the current taxable year.   Nonregistered foreign LLCs (excluding disregarded entities/single member LLCs) that are not doing business, but are deriving income from California or filing to report an election on behalf of a California resident, file Form 565.   A single-member, nonregistered foreign LLC classified as disregarded which is not doing business in California does not file Form 568. Form 540 still applies to people who own SMLLC’s There are many entries in a tax return and just because yo own an LLC does not mean you do not have to submit a Form 540 (California State Tax Return) for an individual. First, the 568 goes to the FTB not the IRS The LLC’s filing requirement will be satisfied by doing all of the following: 1.   Completing Form 568 with all supplemental schedules 2.   Completing and attaching California Schedules K-1 (568) for members with California addresses 3.   Writing “SB 1106 Filing” in red at the top of Form 568, Side 1