Owning an LLC is one of the best things you can do for your business, but it can also feel challenging and confusing at times.
One of the biggest things that business owners struggle with is knowing how to pay all of the associated costs and fees that come with operating an LLC.
After all, if you miss an important fee you could face serious legal and financial consequences ranging from fines to the dissolution of your LLC.
What fees does an LLC owner have to pay every year?
What are the fees to start an LLC?
How often do I have to pay certain fees on my LLC?
These are important questions, and I will answer all of them and more in this article. By the time you’ve finished reading my article, you’ll know exactly which fees an LLC owner must pay and how to avoid the consequences of failing to pay them.
Still, every business owner needs help when it comes to keeping track of fees and making sure that they’re paid in compliance with the laws of the State of California.
That’s where I come in.
My name is Sam, and I’m a business lawyer who specializes in helping entrepreneurs just like you form their LLCs and meet all requirements.
If you have any questions at all about the fees a business owner has to pay every year, send me an email at sam@mollaeilaw.com now so I can answer them!
What is an LLC?
An LLC is a business entity that separates a business owner’s personal liability and assets from the business’s liability and assets.
This means that the members of the LLC are not liable for the debts that the business incurs, which can save business owners from losing everything they have if someone decides to sue the company for any reason.
LLCs also exist as structures to give the business owners great flexibility and choice in how they handle finances and tax. When your LLC makes a profit, instead of paying self-employment tax on all earnings you could file as an S-corp and only have to pay that tax on the salary the business pays you.
The LLC consists of ‘members’ who are actually owners, although every member of the LLC does not necessarily have to be an owner.
It’s important to designate a manager of the LLC to carry out essential business operations and make sure that your LLC is staying on track with paying all of the associated LLC costs and fees of running it.
How Much Does it Cost to Form and Operate an LLC?
When figuring out how much it will take to own and operate an LLC, you should look at both formation costs and annual ongoing costs.
There are a few fees that you’ll pay when forming your LLC but will never have to worry about again, which are the cost of formation.
However there are a number of other costs, taxes, and fees that all must be paid on a certain schedule or your LLC could face fines or even be out of business forever.
Filing Fee for Articles of Organization
It costs $70.00 to file your Articles of Organization with the state of California, and this is a one-time formation cost.
An LLC’s articles of organization list crucial business information about your LLC including who its officers are, how it will conduct business, the business’s name, and more.
While it does not cost much to file your company’s Articles of Organization, it is crucial that you file them correctly and they are thorough enough to protect you and your business in any circumstance.
Filing Fee for Statement of Information
It costs $20.00 each year to submit your LLC’s statement of information, and this is an ongoing cost that will be incurred as long as the LLC in formation.
A Statement of Information gives the state your LLC’s contact details and is important so that any necessary entities may get in touch with your LLC regarding legal or business matters.
In order to pay this fee, you will submit a check or money order made out to the “Secretary of State” within 90 days of the state’s approval of your LLC.
Once your LLC has been approved, you need to submit a new Statement of Information every two years before the date your Articles of Organization were approved whether or not anything has changed regarding your contact details.
LLC Return of Income
Form 568, also known as the LLC Return of Income, must be filed every taxable year with the state of California. This form sums up the fiscal activity of an LLC.
Here are the things that must be included on your LLC Return of Income:
- Your LLC’s $800.00 Annual Franchise Tax,
- LLC Estimated Fees (if you paid them),
- The money the LLC gained and lost in income, deductions, etc., and
- Any other miscellaneous taxes paid.
Form 568 must be filed correctly and on time, or else your business could face serious legal penalties.
Service Fee for Forming LLC
Hiring a business lawyer to help form your LLC will normally cost between $500.00 and $1,500.00 but will save you much more than that in the long run.
The biggest obvious benefit of hiring a business lawyer to help form your LLC is making sure that all of your forms and fees are compliant with the state. Paying as little as $500.00 once to make sure you do things right the first time could save you thousands of dollars down the road.
The other important reason to consider hiring a business lawyer to form your LLC is having an advisor to ask business questions.
After all, if you have a crucial tax question or if you get sued, having a lawyer on your side who knows your business will give you incredible peace of mind. Knowing that you have an expert ready to assist your LLC at any time is something that every business owner needs.
I’ve been a business lawyer for years, and I have experience helping business owners just like you set up and operate their LLCs. If you’re ready to get your LLC off the ground today, contact me now at sam@mollaeilaw.com with any questions you have.
Who Pays California LLC Franchise Tax
Every California LLC must pay the $800.00 Franchise Tax every year.
This tax is paid for the current year, which makes it a ‘prepay’ tax and not a tax you pay after the fact.
No matter how much your LLC does or doesn’t make in any given year, you must pay at least $800.00 for your Franchise tax. This is because the tax is required to operate at all in the business of California, and is important to keep in mind even if your business makes no money or actually loses money during the year.
If a business is doing business in California, registered to do business in California, or organized/incorporated in California then it is required to pay the Franchise tax. So realize that even if you incorporate outside the State of California, if you do business in California you might be required to pay this franchise tax.
This applies to all business entities including C corporations, LLCs, Limited Partnerships, and S corporations.
What Happens if You Don’t Pay Your Franchise Tax?
Not paying your $800.00 minimum California Franchise Tax will result in late fees, penalties, and the possible dissolution of your LLC.
The California Franchise Tax is a necessary evil of doing business within the State of California, and there are serious consequences if you try to ignore it.
While there are ways to get around paying multiple kinds of tax, this is not one of them. There is no escaping having to pay this annual LLC tax if your LLC does business in the State of California, and you should make your business budget accordingly every year to accommodate it.
When Do You Have to Pay Your Franchise Tax?
You must pay your $800.00 California Franchise Tax within the first four months of filing your LLC, and then by April 15th of each year thereafter for the duration of the LLC’s existence.
The payment of the franchise tax is due the 15th day after the 4th month after your LLC is filed, and the month you file your LLC counts as the first month whether it’s the first day of the month or the last day of the month.
That means that whether you file your LLC on February 28 or February 1, you still have to pay your LLC by May 15 of that same year.
This is because February is month 1, March is month 2, April is month 3, and May would be month 4, the month your first franchise tax is due.
After that first payment, your LLC’s franchise tax will be due by the 15th of April regardless of the month you initially filed your LLC.
It is important to note that if you’re forming your LLC late in the year, if possible you should consider forming either after the new year or forming after December 17 but not doing any business until the new year.
This will keep you from having to pay the Franchise tax for both that year and then immediately again during April of the next year.
If you’re considering this option, it’s important to contact a qualified business lawyer in order to ensure that everything is handled properly and compliant with the laws of the State of California.
I’m ready any time you want to know if you can save money this way on your LLC’s franchise tax. Send me an email at sam@mollaeilaw.com today!
Form 3536 Estimated Fee for LLCs
If you make more than $250,000.00 during a business year, you must file a form called Estimated Fee for LLCs. This is form 3536 and how much you owe will depend on how much money your business makes.
This Estimated Fee for LLCs is in addition to the $800.00 LLC Franchise Tax.
You have to pay your LLC’s Estimated Fee for LLCs by the 15th day of the 6th month after the filing of your LLC.
Every year after that first payment, you need to file form 3536 and pay your Estimated Fee for LLCs by June 15.
Below is a table of how much you will have to pay for your Estimated Fee for LLCs based on how much your business makes:
Income Fee
$0 – $249,000 $0
$250,000 – $499,999 $900
$500,000 – $999,999 $2,500
$1,000,000 – $4,999,999 $6,000
$5,000,000+ $11,790
Is Form 3536 Mandatory?
Fortunately, unlike the $800.00 Franchise Tax, you do not have to file form 3536 if your LLC makes less than $250,000.00.
Naturally, however, you should have either an accountant or a qualified business lawyer tracking your profits to be sure that you don’t actually have to pay this tax.
It is better to be prepared and have someone watching your books carefully than realize that your business made more than you thought and end up paying a lot of fines because you missed an important fee.
Conclusion
Now that you understand the fees an LLC owner must pay every year, you should be more confident than ever about your business.
It’s natural that having to pay these fees might seem daunting, but with a little planning and the right business lawyer, they will be no problem at all for an entrepreneur like you.
However, even though you now know all of the LLC fees you will owe, that doesn’t mean you’re alone in figuring out how to pay them and which ones you have to pay.
I’m a business lawyer who takes care of entrepreneurs that are too busy running their business to check their calendar every day and make sure they don’t owe another fee they’ve forgotten.
When you’ve got me on your side, you’ll never miss an important fee again.
Contact me now at sam@mollaeilaw.com so I can start looking out for your business today.
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