New LLC & BUSINESS TAXES

[Heatherautumn]

I believe I saw a exemption somewhere about a time period new business owners dont need to pay taxes within a time frame . Am I exempt from paying business taxes for my new  single member LLC if I created it this year ? When would I need to pay taxes next for it ? Very confused ! 

[Corrlich44]

Hi Heatherautumn,

Unfortunately, that would not be correct. All NET INCOME, not NET LOSS, is considered taxable in the year the NET INCOME is earned.

State Filing Fees, like with California OR other states, may exclude you from paying those costs, which are not income taxes and would never be exempt on a Federal tax return.

More information would need to be know to give an exact answer on a state by state basis.

More often than not, a new business may not generate GROSS REVENUE for providing a service or selling a product.

But you definitely will incur a COST to create or start your business.

If you have Start-Up Costs associated with the creation or starting of that business, those costs cannot be deducted on a pro-rata basis, until the business goes live, based on the type of cost in question.

There is no exemption from paying income tax in your 1st year of starting a business, if you netted a profit.

[Heatherautumn]

Very confused even more . 

On the FTB site it states: 

Exceptions to the first year annual tax

For tax years beginning on or after January 1, 2021, and before January 1, 2024, LLCs that organize, register, or file with the Secretary of State to do business in California are not subject to the annual tax of $800 for their first tax yea

And this :

Annual Tax

Every LLC that is doing business or organized in California must pay an annual tax of $800.

This yearly tax will be due, even if you are not conducting business, until you cancel your LLC.

• You have until the 15th day of the 4th month from the date you file with the SOS to pay your first-year annual tax.
  • Example: You form a new LLC and register with SOS on June 18, 2020. Your annual LLC tax will be due on September 15, 2020 (15th day of the 4th month)
• Your subsequent annual tax payments will continue to be due on the 15th day of the 4th month of your taxable year.

[Heatherautumn]

Oh! California btw

[Corrlich44 · Accepted solution]

And as I expected, this was for California.

The State of California considers LLC members to incur a minimum Franchise Tax on any income they earn, but exempt in their 1st year.

California is a State and most State would consider or label this as a Filing Fee, normally based on Gross Receipts.

Your initial question never stated it was for a State and not the Federal government, but I guessed that was where the concern is.

You would be exempt in not paying that tax in your 1st year of business, ONLY IN, the State of California.

[Heatherautumn]

So on July 7th 2022 I filed for my business to be a single member LLC I have also filed with the secretary of the state.  I have read that my business taxes of $800 were to be filed or paid On the 15th day in the 4th month after July 7th... However when I went to do so I saw the exemption that I previously replied to you with ....

 I have only made a couple hundred off of Etsy this year....

 I thought I was under the impression that I would be able to file these taxes with my personal taxes....

I am in California.. I have no employees it's just me.

 Am I late now on paying the 800 business taxes?

 Or do I just file everything with my personal taxes at 1 time?

[Heatherautumn]

And my other question then is ... my LLC filing with the SOS was July 7... so my taxes would of been due Oct 15th correct ? Am I counting the 4th month the right way ?

And then if that date is right my taxes are due again every 4 months on the 15th day ?? 800 every 4 months? 

What's the next month then? Feb 15th? 

[Heatherautumn]

Ok ! Thank you ! Trying to learn this on my own ! Sorry for my confusion 

[Corrlich44]

The State of California requires a separate business tax return for LLC Members or Owners and are independent of your personal tax return.

From the State of California:

This yearly tax will be due, even if you are not conducting business, until you cancel your LLC.

• You have until the 15th day of the 4th month from the date you file with the SOS to pay your first-year annual tax.
  • Example: You form a new LLC and register with SOS on June 18, 2020. Your annual LLC tax will be due on September 15, 2020 (15th day of the 4th month)
• Your subsequent annual tax payments will continue to be due on the 15th day of the 4th month of your taxable year.

So, in your situation, your first month of July is considered as part of the count.

That means, July, August, September, October... 15th.

My understanding is you would be exempt for that short-period, but then must file your annual business tax return by October 15th every year and pay a minimum of $800, until you close your business with the California Secretary of State.

[Corrlich44]

I understood your last question....

You would annually file by October 15th, starting with your 2nd year

[Corrlich44]

From the date of registration, July 7th (Consider it December 31st).

[Heatherautumn]

Ok. So im in the clear with the state until October 15th next year. 

But what about federal? Have I missed fing dates for federal based off the info I have given you 

( again thank u for helping me learn this correctly.  )

[Heatherautumn]

Filling*

[Corrlich44]

Income for any business eventually will find its way to a personal tax return for the year income was earned or lost (through more expenses) and would be reported on Schedule C, for Single Member LLC Owners or Sole-Proprietors on that given year's personal Form 1040, Schedule 1 (All Other Income) and Schedule C (Income from Sole-Proprietorships or Pass-through LLC's like yourself.

[Corrlich44]

And again, despite what the State of California does, ALL NET INCOME or NET LOSS from January 1st through December 31st is reported on Federal Tax Return, Form 1040, despite the differing timeline using July 7th as your end-end of the year closing date like December 31. 

You are essentially not reporting any income or loss from the date of registration, which is why you would be exempt.

From the day you register on July 7th, that would be equivalent to January 1st and December 31st every year for the State of California to report income or expenses within that timeline.

Look at it like this... 2 sets of books with different closing periods.