California is waiving the $800 annual fee for LLC's that began in 2021. My Form 568 shows $800 due. When I try to change from $800 to 0, Turbotax won't accept the change?

[05joshtaxes93]

I can delete the $800 due (in various places), and change that to 0, but when I re-access the form, TT has reinserted the $800's and generated a 2021 3588 to pay that $800 (that the FTB board has confirmed does not need to be paid)

[DaveF1006]

It depends. What version of Turbo Tax are you using? Is it a 1065 business product or an individual 1040 return?

[05joshtaxes93]

I am using online Turbo Tax - self-employed.  I think it generates a 1040 and Schedule C for the Federal.  I automatically generates the Form 568 with the California State Returns.  That Form 568 however, prefills the $800 annual tax due for 2021.  If I try to change that to $0, it continually reverts back to the $800.  I had a recent chat with the FTB and they confirmed that any LLC formed on or after 01/01/2021 is exempt for the first year from paying the 800.00.  How can I get Turbo Tax to accept this change?

[05joshtaxes93]

I want to be conscientious about ensuring that the forms are filed correctly - and also that TurboTax has the record of what was actually paid, so that those calculations can be part of my ongoing account records.

[DaveF1006 · Accepted solution]

The $800 fee is correct.  In reading this Turbo Tax post written by GeorgeM777, you would have been required to pay a LLC franchise fee in 2021 within 2-3 months after you formed your LLC. You would need to pay again on April 15, 2022. This resulted in back-to-back payments, which provided a hardship for LLC business owners that formed their LLC in the last quarter of the tax year.  Assembly Bill 85. corrected this.

So to avoid this double payment, California waived the first year fee that was to be paid in 2021. You are still expected to pay this $800 because this will apply to the 2022 tax year and not for 2021. After this, the $800 franchise fee will be due every year by the tax filing deadline.

[ Edited 03/16/22|08:35 PM PST]

@05joshtaxes93

[05joshtaxes93]

I agree with what you're saying - but TurboTax is handling it as if that $800 needs to be paid for 2021.  Line 3 of Form 568 "2021 annual Limited Liability Company tax" prefills the amount at $800.  That is the number I am unable to edit (if I fill in a 0, TurboTax reverts that back to $800).

In further confirmation of the understanding that the line refers to 2021, TurboTax is auto-generating TWO 3522 LLC Tax Vouchers to be sent in: one for 2021 and one for 2022.

I need to find a way to correct this, so that my 568 does not indicate that $800 is owed for 2021 -- and so that TurboTax does not "think" that I sent in both the 2021 and 2022 vouchers.

Your help is much appreciated.

[DaveF1006 · Accepted solution]

Yes, keep in mind that this annual fee does not affect your overall tax liability on your return. You are to send in the tax vouchers along with the payment(s) just for the amount of the annual fee. Here is my suggestion.

Send in both tax vouchers at once. Send in the payment for the 2022 tax voucher, but for the 2021 voucher, attach a statement stating that 2021 is the first year of your LLC and that the first year's payment is waived in accordance with the provisions contained in  Assembly Bill 85. Also make a copy of form 568 and send in explaining that Turbo Tax prefilled this information and you could not edit it. As far as correcting the Form 568, there is no way to edit Form 568 so that the voucher doesn't print out. 

Make copies of the documentation you send in to support your assertions in the event if California questions it, which they shouldn't. 

@05joshtaxes93

[05joshtaxes93]

thank you!