Effective January 1, 2021, California law temporarily exempts limited liability companies, limited partnerships, and limited liability partnerships from paying California’s $800 minimum franchise tax for their first year of operation. The corporate attorneys from San Luis Obispo’s Toews Law Group, Inc., report that this exemption significantly reduces the start-up costs associated with creating certain business entities.
Typically, a California business entity (such as a corporation, LLC, or limited partnership) must pay a minimum franchise tax of $800 each year they are in operation. Corporations (such as S-Corps and C-Corps) are exempt from paying the minimum tax in the first taxable year. But entities such as LLCs, LLPs, and LPs, are required to pay the minimum $800 tax in their first taxable year. The minimum franchise tax is due regardless of the income the business entity generated during that year.
With the implementation of Assembly Bill 85, California LLCs, LLPs, and LPs, which were formed after January 1, 2021, and before January 1, 2023, are exempt from the minimum franchise tax in their first taxable year. Assembly Bill 85 which was approved by Governor Newsom on June 29, 2020, was intended to ease the ability for individuals to start new businesses.
The creation of an LLC is a common method for individuals and businesses to limit their liability. If you own rental property or operate a business, you’ve likely considered forming an LLC to protect your personal assets. With the recent exemption from the $800 minimum franchise tax, now is a great time to form your LLC, LP or LLP. For more information on the advantages of limited liability and potential benefits in creating an LLC, please review the Toews Law Group, Inc. article, “What are the differences between a corporation and an LLC?”
If you are preparing to start a new business, corporation or LLC, the experienced corporate attorneys from San Luis Obispo’s Toews Law Group, Inc. can help.
If you’d like to discuss creating an LLC with an experienced business attorney call Toews Law Group today for a free one-hour business formation consultation. The firm advises business owners and ventures in all aspects of start-up and operations. Toews Law Group, Inc. can help you set up the best legal entity, take the steps to obtain financing, protect your business, choose the right business insurance and more.