How Do Taxes Work for a Small Business in California?
This is part of our general Guide to Laws for Business Owners and Entrepreneurs.
Businesses in California must pay income taxes, which includes federal income tax, as well as state and local income taxes. And if you sell any goods or products, you must collect sales tax from your customers and send this to the government.
For more on federal income taxes for businesses, see our Guide to Taxes for Small Business in the U.S.
What are the income taxes for California small businesses?
The Franchise Tax Board (FTB) is the agency that collects income taxes from businesses in California (It’s like the IRS of California).
A business in California is taxed differently depending on which tax treatment it has.
How do taxes work for a California sole proprietorship?
For a California business operating as a sole proprietorship (which happens when the business does not have a corporation or LLC), the business owner is simply taxed on the profits of the business. The filing and payment of these taxes are done as part of the personal taxes of the business owner, on a form called Schedule C.
There is no separate business tax filing, and no minimum franchise tax for California sole proprietorships (unlike for LLCs or corporations).
How do taxes work for a California general partnership?
For a California business operating as a general partnership, the business owners are simply taxed on their share of the profits of the business. The partnership issues the owners a Schedule K-1 (Form 1065) showing this profit (or loss). The filing and payment of these taxes are “passed through” and done as part of the personal taxes of the business owners, on a form called Schedule E.
There is no separate business tax filing, and minimum franchise tax for California general partnerships (unlike for LLCs or corporations).
How do taxes work for a California LLC?
California LLCs (taxed as either a sole proprietorship or general partnership) have an annual minimum franchise tax of $800, paid to the California FTB.
In addition, if the LLC is taxed as a sole proprietorship, the owner of the LLC pays personal taxes on the profits of the business (using Schedule C).
In addition, if the LLC is taxed as a general partnership, the LLC issues the owners a Schedule K-1 (Form 1065) showing this profit (or loss). The filing and payment of these taxes are “passed through” (aka pass-through taxes) and done as part of the personal taxes of the business owners, on a form called Schedule E. The owners of the LLC pay personal taxes on their share of the profits of the business.
If the LLC is taxed as an S corporation, see below.
How do taxes work for a California S corporation?
California businesses taxed as an S corporation are generally taxed by the FTB at 1.5%, or a minimum tax of $800.
In addition, the S corporation issues the owners a Schedule K-1 (Form 1120-S) showing this profit (or loss). The filing and payment of these taxes are “passed through” (aka pass-through taxes) and done as part of the personal taxes of the business owners. The owners of the S corp pay personal taxes on their share of the profits of the business (using Schedule E).
How do taxes work for a California C corporation?
Businesses taxed as a C corporation are generally taxed by the California FTB at almost 9%, or a minimum tax of $800. In addition, the IRS generally taxes the C corporation at 21%.
Any profits distributed to owners of the C corporation are then taxed on the owners’ personal income taxes.
See more about tax treatments.
What are the local income taxes for California small businesses?
Most cities and counties in California require you to have a business license (aka business tax certificate), which is how they collect taxes from businesses. But often there are exemptions for small business. See our Guide to Business Licenses and Registration in California.
Do California small businesses need to collect sales tax?
If your business sells any goods, you must collect sales tax from your customers and send this to the government. If applicable, you would need to get a California seller’s permit. See more at our Guide to the California seller’s permit and sales tax.
When do California small businesses pay taxes?
State taxes are typically due the same time as federal taxes. See our Guide to Taxes for Small Business in the U.S. Local taxes and sales taxes may be due at different times, so check with your local government and with the CA CDTFA for sales tax due dates.
Further Resources
Guide to Taxes for Federal Taxes for Small Businesses in the U.S.
Guide to Deductions for Small Business
Guide to the Law for Entrepreneurs and Small Business Owners
Guide to Tax Controversies and Disputes
Tax Treatments for Small Business
Guide to Laws for California Business Owners and Entrepreneurs
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