California Franchise Tax Board & TurboTax Premier

[Vocstra]

Hello. Thank you for taking the time out to read my post and/or reply with an answer or advice. Here we go.

My wife and I are California residents, but are partners with another couple that has an LLC that was register in Massachusetts. It was set up June of 2024, but nothing was done as of yet. It will involve purchasing, selling, and leasing residential property. The federal and Massachusetts state taxes for the LLC was completed already and Schedule K-1 (Form 1065) were issued out to the four partners.

Now my wife and I are in the process of doing our joint personal taxes. After reading the California Franchise Tax Board website pertaining to taxes, it seems regardless if the LLC was in California or not, just because we live in California, we have to pay taxes. Check out the link and example from the link below. 

https://www.ftb.ca.gov/forms/misc/3556.html

Example 1

Paul is a California resident and a member of a Nevada LLC. The Nevada LLC owns property in Nevada. The LLC hires a Nevada management company to collect rents and provide maintenance. Paul has the right to hire and fire the management company. He occasionally has telephone discussions from California with the management company in Nevada regarding the property. He is ultimately responsible for the property and oversees the management company. Paul conducts business in California on behalf of the LLC. The LLC must file Form 568.

We have gotten in contact with someone at the California Franchise Tax Board and they made it even more confusing saying, "If there is no CA business activity, then it does not need to pay to CA." Which is true because nothing has happen except the set up. Then the representative said, "Be advised, a tax return needs to be filed every tax year even if no business activity/income has been conducted." Then she provided Form FTB 3522. Which is a voucher to pay if there no CA SOS file number, but the form refers to having the LLC made in California and ask for that file number. In the end, just going to pay. Then in the example above it mentions a Form 568.

Here are my questions in regard to using TurboTax Premier.

1. Do we, the California residents pay the franchise tax through our personal tax using TurboTax Premier?
2. If we, the California residents have to pay, will that form, FTB Form 3522 appear to be printed or we can pay online?
3. Do we, the California residents, have to pay on behalf of the Massachusetts LLC, if so, how do we do that within TurboTax Premier? Keep in mind that the Massachusetts LLC already filed taxes through TurboTax Business and it never triggered a California state filing even with all the members information.
4. The example above mentioned a Form 568. Will that form appear as well when we start our California state taxes using the TurboTax Premier?

I know that was a lot and thank you again so much for taking the time out to read my post.

[PatriciaV · Accepted solution]

Since you are filing Schedule K-1 from the Massachusetts LLC, you would report only the income from the K-1 (if any). If the LLC does business in California, it may need to register and pay franchise taxes in California.

California does tax all income sources on an individual tax return. But a California resident would only file Form 568 if they filed Schedule C for a Single-Member LLC on their personal tax return. The pass-through income from Schedule K-1 doesn't require this form.

TurboTax will ask specific questions about the income you report. If there are state forms required to be included with your state tax return, they will be prepared and filed with your state return.

[Vocstra]

PatriciaV,

Hello. I hope all is well with you. Thank you so much for the information you provided. As always, it is very helpful and informative. Low key I be hoping you reply. LOL!!! I have gotten so use to only getting your replies back for so long. Thank you.

I have completed my individual taxes and I only had to do the Federal and two states (Massachusetts and California). Nothing came about saying we would have to pay a California Franchise Tax Board payment of $800. Still a little nervous about that due to what the IRS be saying on their page with the examples. Also expressing fines and penalties by the day.

Though I think like you stated, since it’s not a single member LLC, not doing business in California, it’s registered in Massachusetts, and there are additional partners, then I guess we don’t have to pay that $800.

Final question. Let’s say that it was a single member LLC with an out of state LLC registration, would the California State Taxes portion recognize that and provide Form FTB 3522 (LLC Tax Voucher) to pay the $800 franchise tax or do the LLC have to figure that out on their own?

Thank you once again.