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 federal income tax info, see our Guide to Taxes for Small Business in the U.S.
What are the state income taxes for California small businesses?
The Franchise Tax Board (FTB) is the agency that collects income taxes from businesses in California (It’s the IRS of California).
A business in California can be taxed differently depending on which tax treatment it has. For businesses taxed as a sole proprietorship or general partnership, state income taxes are generally imposed only on the business owners, not the business itself.
Other tax treatments have the following requirements:
California LLCs (with standard tax treatment) have an annual tax of $800 (in addition to taxes the business owners pay).
Businesses taxed as an S corporation are generally taxed by the FTB at 1.5%, or a minimum franchise tax of $800. Businesses taxed as a C corporation are generally taxed by the FTB at almost 9%, or a minimum of $800.
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.