LLC taxed as S Corp in California - how to pay annual and estimated tax?

[simone]

Hi,

I started an LLC in Jan 2018 and elected to be an S Corporation.

I paid the $800 annual tax on March 1 to the Franchise Board. I selected LLC and not Corporation in this window: https://webapp.ftb.ca.gov/WebPay/belogin.aspx?Submit=Use+Web+Pay&WT.si_n=WPBT&WT.si_x=2 and proceeded to pay my $800 in Annual Tax Payment, Form 3522.

Did I pay the wrong annual tax and how do I remedy the situation?

If this is right, did I need to pay estimated taxes by April 15? My income will be small so I don't expect to have an income tax >$800 using the 1.5% rate.

Thank you!

[Rick19744 · Accepted solution]

My comments are as follows:

1. California conforms to the federal entity classification regulations commonly known as "check-the-box regulations" that allow an LLC to elect to be taxed as a corporation.  This means that if you filed the appropriate forms with the IRS to be taxed as an S corporation, then you are an S corporation for California as well.
2. Based on #1 above, you selected the incorrect entity type.  You should have selected S corporation.  However, you paid in the correct amount of tax as $800 is the minimum.
3. This may or may not cause confusion at the California FTB (see note 6) when you actually file for California form 100S next year.  If it does, then it just means you will get a notice and you will need to respond with what happened in a response letter.  KEY is to not ignore any letters thinking you don't owe because you already paid in the $800. 
4. California tax structure is a combination of net income OR franchise tax.  As noted above, the $800 is the minimum franchise fee that needs to be paid in annually regardless of income or activity; must be paid as long as you are registered in California or are doing business in California.  See the attached link for some guidelines for S corporations https://www.ftb.ca.gov/businesses/Structures/S-Corporations.shtml
5. Also attached is a link to the form 100S.  You will note that line 21 indicates to pay the 1.5% tax but no less than the minimum $800 fee.  So if you don't expect to be liable for more than this, you should be good to go for 2018.  https://www.ftb.ca.gov/forms/2017/17_100s.pdf
6. Since the form 3522 is an LLC voucher you may want to call the California FTB and explain what happened and see if this can be corrected within their records now and avoid any letter correspondence later.

[simone]

Thank you so much Rick19744 for this insightful comment! I will call the board. I have three more questions:

1. Say I expect to owe more than $800 in taxes, how are these paid - say I have to pay $1800, thus $1000 beyond the $800. Do I then pay $300+$800 in April, $400 in July, $0 in October, and $300 in January? Or are the $1800 as a whole distributed into the 30/40/0/30% portions?

2. I actually went and tried to see what happens if I pay as a corporation at this link - if I select Corporation it asks me for a 7 digit number, which I don't have. Only if I choose LLC, I can enter my 12 digit entity number. <a rel="nofollow" target="_blank" href="https://webapp.ftb.ca.gov/WebPay/belogin.aspx?Submit=Use+Web+Pay&WT.si_n=WPBT&WT.si_x=2">https://web...>

3. How is net income defined for state taxes in an S corporation? I am assuming it is roughly revenue minus expenses, and these expenses include my salary (I am the only employee), therefore the net income is whatever the profit is and wasn't paid to me. How about taking out distributions?

Thanks so much - I am aware that I would rather ask an accountant, but the last one gave me the advice that led to this dilemma, so I am very thankful for your answers until I find the right person. Thank you!!

[Rick19744]

response deleted due to formatting issues

[Rick19744]

Responses to your questions:
1) You need to look at what you expect the total California liability to be and make estimated tax payments based on that amount. See the attached link which provides some useful information <a rel="nofollow" target="_blank" href="https://www.ftb.ca.gov/businesses/Structures/S-Corporations.shtml?WT.mc_id=Business_Forms_SCorpTOC">...>
2) I believe this is due to the incorrect registration. When you call the FTB they can hopefully provide some direction here.
3) Your question asks about income for "state taxes" and not specifically California. If you are asking about state taxation of S corporations in general, that will depend on each specific state. If you are asking about California specifically, I have attached a link to the form 100S for you to review <a rel="nofollow" target="_blank" href="https://www.ftb.ca.gov/forms/2017/17_100s.pdf">https://www.ftb.ca.gov/forms/2017/17_100s.pdf</a>
4) And the booklet for the form 100S <a rel="nofollow" target="_blank" href="https://www.ftb.ca.gov/forms/2017/17_100sbk.pdf">https://www.ftb.ca.gov/forms/2017/17_100sbk.pdf</a>
5) Keep in mind that each state passes their own legislation on whether or not they follow federal so most states have numerous state adjustments as a result. Depending on your business, it may be in your best interest to get some professional assistance in the beginning to make sure you get started on the right path.

[pjbms]

Hi Simone,

Were you able to figure this out? I am in similar situation and TurboTax Business keeps flagging that I don't have CA Corporation Number. I only have the LLC ID because I later changed my LLC to be treated as S Corp. How do I move ahead in TurboTax Business?

[kyoo]

I was stuck on the same box every time I clicked E-File and Turbotax would say that's an error to not have Corporation#.

I think clicking around multiple times or something and the instructions had some options if no Corp#.  I think one of the option was "LLC filing as S Corporation" or something, so I typed that into the Corp# box and that seemed to pass:)

[Rick19744]

This is an old question and response.  While the dates may appear fairly recent, they are not accurate.

The dates reflect the date the question was transferred from the old forum to this new forum.

I recommend you begin your own string with a new question.

[NOLA Benny]

Currently, my CA balance sheet is out by that amount.  It is deducting it on the federal 1120-S, but apparently not the CA form 100-S.

Thanks in advance.