California offers a vibrant environment for business, with over 4.3 million small businesses employing almost half of the state’s workforce. Whether you’re an established business owner or planning to start a new venture, understanding the tax landscape in California is crucial. This guide provides an overview of the various taxes small businesses in California must navigate, including tax rates, filing requirements, and deadlines.
Types of Business Taxes in California
Business owners in California may be subject to various taxes depending on their business structure, activities, and revenue. Here’s a breakdown of the main types of taxes:
Corporate Income Tax
S Corporation Tax
LLC Annual Tax
Applicable Entities: LLCs
Tax Rate:$800
Filing Requirements: File Form FTB 3522 by the 15th day of the fourth month of the tax year.
LLC Fee
Applicable Entities: LLCs that will make more than $250,000 in a tax year
Tax Rate:Flat fee ranging from $900 to $11,790 based on total California income
Filing Requirements: File Form FTB 3536 by the 15th day of the sixth month of the current tax year.
Pass-Through Entity (PTE) Tax
Applicable Entities: Entities taxed as S corporations or partnerships
Tax Rate: 9.3% of qualified net income (the sum of the pro rata or distributive share and guaranteed payments of each qualified taxpayer’s income subject to California personal income tax)
Filing Requirements: File the first payment on or before June 15th during the tax year of the election and the second payment on or before the due date of the original return without regard to extensions. Use Form FTB 3893.
Alternative Minimum Tax
Applicable Entities: C corps and LLCs with C corp electionsthat don’t report a net income
Tax Rate: 6.65%
Filing Requirements: File Schedule P (100) with Form 100 by the 15th day of the fourth month after the tax year ends.
Franchise Tax
Applicable Entities: C corps,S corps, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs)
Tax Rate for C Corps, LLCs with C Corp elections, LPs, and LLPs: $800
Tax Rate for S Corps: 1.5% of net income or the minimum of $800, whichever is larger
Tax Rate for LLCs: Minimum $800, up to $11,790 based on income
Filing Requirements: C corps and LLCs must file by the 15th day of the fourth month after the close of the tax year.S corps,LPs, and LLPs must file by the 15th day of the third month after the close of their tax year.
Sales and Use Tax
Applicable Activities: Retail sales of tangible personal property
Tax Rate: The statewide rate is 7.25% (local rates may vary)
Filing Requirements: File Form CDTFA-401-A monthly, quarterly, or annually based on sales volume.
Withholding Tax
Applicable Entities: Employers with employees
Tax Rate: Varies based on Employee’s Withholding Allowance Certificate (Form DE 4)
Filing Requirements: File quarterly returns (Form DE 9 and Form DE 9C) by January 1, April 1, July 1, and October 1. More frequent deposits are required when more than $350 in personal income tax is withheld.
Unemployment Insurance Tax
Employment Training Tax
Business Personal Property Tax
Applicable Entities: Businesses using personal property
Tax Rate: 1% of value
Filing Requirements: If notified, file the Business Property Statement by the specified date.
Nonresident Withholding Tax
Applicable Entities: Pass-through entities with nonresident members
Tax Rate: 7% of the gross payment or distribution amount that’s more than $1,500 in a calendar year
Filing Requirements: File Form 592-Q quarterly by April 15, June 15, September 15, and January 15.
How to File and Pay California Business Taxes
Business taxes in California can be filed and paid through various methods.
Online Filing and Payment: Pay online with Web Pay or pay by credit card.
Mail: Send forms and payments to:
Franchise Tax Board
PO Box 942857
Sacramento CA 94257-0631
Important Deadlines
Keep track of these key dates to avoid penalties:
Corporate Income Tax Returns: Due by the 15th day of the fourth month after the tax year ends
Estimated Tax Payments: Due quarterly on the 15th day of the fourth, sixth, ninth, and 12th month of the tax year
Sales and Use Tax Returns: Monthly, quarterly, or annual filing based on sales volume
Withholding Tax Returns: Due quarterly by January 1, April 1, July 1, and October 1
Unemployment Insurance Reports: Due quarterly by January 1, April 1, July 1, and October 1
Franchise Tax Returns: Due the 15th day of the fourth month after the tax year ends
for C corps and LLCs.Due by the 15th day of the third month after the tax year ends for S corps,LPs, and LLPs
AMT Returns: Due by the 15th day of the fourth month after the tax year ends
Tax Credits and Incentives
California offers several tax credits and incentives for small businesses, including:
California Competes Tax Credit: This is available to businesses of any industry, size, or location that want to locate, stay, or grow in California. Applicants are evaluated based on 14 different factors, including the number of full-time jobs being created, the amount of investment, and strategic importance to the state or region.
New Employment Tax Credit: This is available to companies that hire qualified full-time employees within designated geographic areas.
Research and Development Tax Credit: This is available to businesses that paid for or incurred qualified research expenses while conducting qualified research activity in California. Qualified research expenses include wages, supplies, and contract research costs.
Check out our article on California tax incentives for more information.
California’s business tax breakdown by business type
Business taxes can get complicated, so below, we’ve included a chart that breaks down which taxes different business structures usually pay.
Keep in mind that pass-through entities don’t pay federal income taxes themselves—the obligation is passed on to their business owners or shareholders, who pay them through their personal income tax returns.
Business type | Personal income tax | Corporate income tax | Franchise tax | PTE tax | Sales and use tax | Withholding tax | Unemployment tax | Federal income taxes |
C corp | No | Yes | Yes | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
S corp | Yes (pass-through), if not making the PTE election | Yes | Yes | Yes, if elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
LLC | Yes (pass-through), if not making the PTE election | Yes, with C corp election | Yes | Yes, if treated as partnership and elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
Partnership | Yes (pass-through), if not making the PTE election | No | Yes, if LP or LLP | Yes, if elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
Sole proprietorship | Yes (pass-through) | No | No | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes, by way of individual income tax |
As a business owner, your time and energy are valuable, finite resources. Gusto can save you time and provide peace of mind. Our easy-to-use software automatically files all your payroll taxes each time you run payroll—freeing up your bandwidth for the work that matters most.
Learn how Gusto can simplify the operations of your small business by creating an account today.
California Small Business Taxes: The Employer’s 2024 Guide
California offers a vibrant environment for business, with over 4.1 million small businesses employing almost half of the state’s workforce. Whether you’re an established business owner or planning to start a new venture, understanding the tax landscape in California is crucial. This guide provides an overview of the various taxes small businesses in California must navigate, including tax rates, filing requirements, and deadlines.
Types of Business Taxes in California
Business owners in California may be subject to various taxes depending on their business structure, activities, and revenue. Here’s a breakdown of the main types of taxes:
Corporate Income Tax
S Corporation Tax
LLC Annual Tax
Applicable Entities: LLCs
Tax Rate:$800
Filing Requirements: File Form FTB 3522 by the 15th day of the fourth month of the tax year.
LLC Fee
Applicable Entities: LLCs that will make more than $250,000 in a tax year
Tax Rate:Flat fee based on total California income
Filing Requirements: File Form FTB 3536 by the 15th day of the sixth month of the current tax year.
Pass-Through Entity (PTE) Tax
Applicable Entities: Entities taxed as S corporations or partnerships
Tax Rate: 9.3% of qualified net income (the sum of the pro rata or distributive share and guaranteed payments of each qualified taxpayer’s income subject to California personal income tax)
Filing Requirements: File the first payment on or before June 15th during the tax year of the election and the second payment on or before the due date of the original return without regard to extensions. Use Form FTB 3893.
Alternative Minimum Tax
Applicable Entities: C corps and LLCs with C corp electionsthat don’t report a net income
Tax Rate: 6.65%
Filing Requirements: File Schedule P (100) with Form 100 by the 15th day of the fourth month after the tax year ends.
Franchise Tax
Applicable Entities: C corps,S corps, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs)
Tax Rate for C Corps, LLCs with C Corp elections, LPs, and LLPs: $800
Tax Rate for S Corps: 1.5% of net income or the minimum of $800, whichever is larger
Tax Rate for LLCs: Minimum $800, up to $11,790 based on income
Filing Requirements: C corps and LLCs must file by the 15th day of the fourth month after the close of the tax year.S corps,LPs, and LLPs must file by the 15th day of the third month after the close of their tax year.
Sales and Use Tax
Applicable Activities: Retail sales of tangible personal property
Tax Rate: The statewide rate is 7.25% (local rates may vary)
Filing Requirements: File Form CDTFA-401-A monthly, quarterly, or annually based on sales volume.
Withholding Tax
Applicable Entities: Employers with employees
Tax Rate: Varies based on Employee’s Withholding Allowance Certificate (Form DE 4)
Filing Requirements: File quarterly returns (Form DE 9 and Form DE 9C) by January 1, April 1, July 1, and October 1. More frequent deposits are required when more than $350 in personal income tax is withheld.
Unemployment Insurance Tax
Applicable Entities: Employers with employees
Tax Rate: Varies based on business’s experience rating
Wage Base: First $7,000 per employee per year
Filing Requirements: File quarterly returns (Form DE 9 and Form DE 9C) by January 1, April 1, July 1, and October 1.
Employment Training Tax
Applicable Entities: Employers with employees
Tax Rate: 0.01%
Wage Base: First $7,000 per employee per year
Filing Requirements: File quarterly returns (Form DE 9 and Form DE 9C ) by January 1, April 1, July 1, and October 1.
Business Personal Property Tax
Applicable Entities: Businesses using personal property
Tax Rate: 1% of value
Filing Requirements: If notified, file the Business Property Statement by the specified date.
Nonresident Withholding Tax
Applicable Entities: Pass-through entities with nonresident members
Tax Rate: 7% of the gross payment or distribution amount that’s more than $1,500 in a calendar year
Filing Requirements: File Form 592-Q quarterly by April 15, June 15, Sept. 15, and January 15.
How to File and Pay California Business Taxes
Business taxes in California can be filed and paid through various methods.
Online Filing and Payment: Pay online with Web Pay or pay by credit card.
Mail: Send forms and payments to:
Franchise Tax Board
PO Box 942857
Sacramento CA 94257-0631
Important Deadlines
Keep track of these key dates to avoid penalties:
Corporate Income Tax Returns: Due by the 15th day of the fourth month after the tax year ends
Estimated Tax Payments: Due quarterly on the 15th day of the fourth, sixth, ninth, and 12th month of the tax year
Sales and Use Tax Returns: Monthly, quarterly, or annual filing based on sales volume
Withholding Tax Returns: Due quarterly by January 1, April 1, July 1, and October 1
Unemployment Insurance Reports: Due quarterly by January 1, April 1, July 1, and October 1
Franchise Tax Returns: Due the 15th day of the fourth month after the tax year ends
for C corps and LLCs.Due by the 15th day of the third month after the tax year ends for S corps,LPs, and LLPs
AMT Returns: Due by the 15th day of the fourth month after the tax year ends
Tax Credits and Incentives
California offers several tax credits and incentives for small businesses, including:
California Competes Tax Credit: This is available to businesses of any industry, size, or location that want to locate, stay, or grow in California. Applicants are evaluated based on 14 different factors, including number of full-time jobs being created, amount of investment, and strategic importance to the state or region.
New Employment Tax Credit: This is available to companies that hire qualified full-time employees within designated geographic areas.
Research and Development Tax Credit: This is available to businesses that paid for or incurred qualified research expenses while conducting qualified research activity in California. Qualified research expenses include wages, supplies, and contract research costs.
Check out our article on California tax incentives for more information.
California’s business tax breakdown by business type
Business taxes can get complicated, so below, we’ve included a chart that breaks down which taxes different business structures usually pay.
Keep in mind that pass-through entities don’t pay federal income taxes themselves—the obligation is passed on to their business owners or shareholders, who pay them through their personal income tax returns.
Business type | Personal income tax | Corporate income tax | Franchise tax | PTE tax | Sales and use tax | Withholding tax | Unemployment tax | Federal income taxes |
C corp | No | Yes | Yes | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
S corp | Yes (pass-through), if not making the PTE election | Yes | Yes | Yes, if elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
LLC | Yes (pass-through), if not making the PTE election | Yes, with C corp election | Yes | Yes, if treated as partnership and elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
Partnership | Yes (pass-through), if not making the PTE election | No | Yes, if LP or LLP | Yes, if elect | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
Sole proprietorship | Yes (pass-through) | No | No | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes, by way of individual income tax |
As a business owner, your time and energy are valuable, finite resources. Gusto can save you time and provide peace of mind. Our easy-to-use software automatically files all your payroll taxes each time you run payroll—freeing up your bandwidth for the work that matters most.
Learn how Gusto can simplify the operations of your small business by creating an account today.
