California isn’t just home to two of the world’s biggest industries—tech in Silicon Valley and show business in Los Angeles—it’s also home to millions of eager entrepreneurs. According to 2022 data from the Small Business Administration’s Office of Advocacy, small businesses make up 99.8% of all California businesses. With 4.2 million small businesses across the state, California is the state with the largest number of small businesses.
However, California is also one of the states with the steepest business taxes. If you own a small business in California—or want to start one—it’s crucial to understand how small business taxes in California work.
Below, we break down the different types of business taxes imposed, the tax rates, and which ones apply to which business entities.
Which types of taxes do business owners pay in California?
In California, business owners pay different taxes according to business type. Depending on how you structure your operation, you could end up paying a California corporate tax, an alternative minimum tax (AMT), or a franchise tax.
California corporate taxes
California corporate tax, which is the tax on an organization’s profits, applies to C corporations and Limited Liability Companies (LLCs) that elect C corp status. The corporate tax rate in California is higher than the average corporate tax rate in the US. It’s a flat 8.84%, and applies to net taxable income from any business activity in the state.
California alternative minimum tax (AMT)
AMT is a tax imposed to ensure that a tax filer pays a certain amount in taxes—regardless of how many business tax deductions they take or tax credits they claim. The AMT in California is 6.65%.
Corporations that don’t report a net income profit—because they take advantage of a lot of business tax deductions, for example—have to pay AMT instead of the corporate tax. The same treatment goes for LLCs that operate as C corps and don’t report a net income.
California franchise taxes
Franchise taxes don’t apply to franchise businesses specifically. Rather, franchise taxes are taxes certain businesses have to pay for the privilege of doing business in California. In California, the franchise tax applies to C corps, S corporations, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs).
The minimum franchise tax is $800, but the exact amount you pay depends on your business type. Here’s a breakdown:
- C corps: C corps have to pay the minimum franchise tax of $800.
- S corps: S corps have to pay a franchise tax of 1.5% of their net income or the minimum of $800, whichever is larger.
- LLCs: Every LLC has to pay a minimum of $800 in franchise taxes; however, the exact amount varies based on an LLC’s net income. If an LLC earns between $250,000 and $499,999, the franchise tax goes up to $900. If an LLC’s net income is between $500,000 and $999,999, they pay $2,500 in franchise taxes. For a net income between $1 million and $4,999,999, the franchise tax is $6,000. With a net income of $5 million or more, the franchise tax is $11,790.
- LLCs with C corp status: LLCs operating as C corps have to pay the minimum franchise tax of $800.
- LPs and LLPs: Because they’re considered LLCs, LPs and LLPs each pay the minimum franchise tax of $800 a year.
- General partnerships and sole proprietorships: These business types don’t pay franchise taxes.
California state income taxes
Sole proprietors, independent contractors, and people who earn income from pass-through entities like S corps and LLCs have to pay personal income taxes. The state income tax rate ranges from 1% to 12.3%, depending on your tax bracket and filing status.
Below are the 2022 tax rates for people who are single or married but filing separately. You can see the rest of the 2022 tax rates for joint filers and heads of households here.
Single or married filing separately
|Taxable income||Tax rate||Tax owed|
|$0-$10,099||1%||1% of taxable income|
|$10,100-$23,942||2%||$100.99 + 2% of the amount over $10,099|
|$23,943-$37,788||4%||$377.85 + 4% of the amount over $23,942|
|$37,789-$52,455||6%||$931.69 + 6% of the amount over $37,788|
|$52,456-$66,295||8%||$1,811.71 + 8% of the amount over $52,455|
|$66,296-$338,639||9.3%||$2,918.91 + 9.3% of the amount over $66,295|
|$338,640-$406,364||10.3%||$28,246.90 + 10.3% of the amount over $338,639|
|$406,365-$677,275||11.3%||$35,222.58 + 11.3% of the amount over $406,364|
|$677,276 or more||12.3%||$65,835.52 + 12.3% of the amount over $677,275|
Quarterly estimated taxes
You also have to pay quarterly estimated tax payments in California if you expect to owe the state at least $500 in taxes in a calendar year. Quarterly payments are due January 15, April 15, June 15, and September 15. Use Form 540-ES to file and pay your deposits.
California business tax breakdown
Navigating small business taxes in California can be confusing, so here’s a helpful chart that summarizes the different types of taxes outlined above.
|Business Type||Net income reported||Taxes owed|
|C corp||Yes||Corporate tax of 8.84% + $800 franchise tax|
|C corp||No||AMT of 6.65% + $800 franchise tax|
|S corp||Yes||1.5% franchise tax|
|S corp||No||$800 franchise tax|
|LLC taxed as a C corp||Yes||Corporate tax of 8.84% + $800 franchise tax|
|LLC taxed as a C corp||No||AMT of 6.65% + $800 franchise tax|
|LLC||Yes||Franchise tax, varying amount depending on net income|
|LLC||No||$800 franchise tax|
|LP||Yes or no||$800 franchise tax|
|LLP||Yes or no||$800 franchise tax|
|General partnership||Yes or no||No taxes|
|Sole proprietorship||Yes or no||No Taxes|
Do you need workers’ compensation insurance as a California business owner? Find out here.
When do you pay your California small business taxes?
It’s important to pay your California small business taxes on time so you don’t receive any penalties. Here are the respective deadlines to note and forms to prepare:
C corps need to file their tax returns using the California Corporation Franchise or Income Tax Return (Form 100) on the 15th day of the fourth month after the end of your taxable year. If your taxable year ends in December, for example, your return is due April 15.
Your tax payment is also due on the 15th day of the fourth month after your tax year. If you have to make estimated quarterly payments, you can use the Corporation Estimated Tax (Form 100-ES). Estimated payments are due on the 15th days of the fourth, sixth, ninth, and 12th months after the beginning of your tax year.
S corps in California need to file the California S Corporation Franchise or Income Tax Return (Form 100S) and pay your total tax owed by the 15th day of the third month after the close of your taxable year.
For the first year you’re registered as an LLC, you have until the 15th day of the fourth month from the date you file with the California Secretary of State to pay your first-year annual tax. After the first year, your tax payments will be due on the 15th day of the fourth month of your taxable year.
You can submit your tax payment along with the LLC Tax Voucher (FTB 3522).
LPs and LLPs
LPs and LLPs need to pay their franchise taxes by the 15th day of the third month after the close of their tax year.
General partnerships, sole proprietorships, and contractors
If you need to file state income taxes, you’ll file FTB Form 540, the California Resident Income Tax Return. The filing and payment deadline for your California state tax return is usually April 15. If that day falls on a weekend, the deadline gets moved to the following Monday.
Want to get prepared for tax time? It’s never too early to start. Check out our tax tips here.
How do you pay your California small business taxes?
There are a few different ways to pay your California small business taxes. You can use CalFile to file your tax return online and make payments. However, you can also pay online with Web Pay, pay by credit card, or pay by mail to the following address:
Franchise Tax Board
PO Box 942857
Sacramento CA 94257-0631
File your California small business taxes with Gusto
If you run your business from California and want help with taxes, Gusto can help. Using our streamlined small business payroll software makes it easier to run payroll, file taxes, and ensure compliance. Learn more about our integrated platform and pricing options.