Introduction
Whether you’re running a small LLC or a growing corporation in California, you’ll likely owe franchise tax—a mandatory annual tax for doing business in the state. This guide simplifies how franchise tax works for LLCs, corporations, and S-corporations in 2025 (for the 2024 tax year).
What Is the California Franchise Tax?
Applicable Code: IRC §7701; California Revenue & Taxation Code §§ 23151–23153
The California Franchise Tax is a tax levied on business entities for the privilege of doing business in the state. It’s not based on profits alone—even if your company made no income, you still owe the minimum annual tax.
Entities Subject to Franchise Tax
| Entity Type | Subject to Franchise Tax? |
|---|---|
| LLCs (excluding certain single-member LLCs) | Yes |
| C Corporations | Yes |
| S Corporations | Yes |
| LPs & LLPs | Yes |
| Sole Proprietors | No |
| General Partnerships (No LLC/LLP election) | No |
Franchise Tax Rates in 2024 (Filed in 2025)
| Entity Type | Minimum Tax | Tax Rate | Additional Fees |
|---|---|---|---|
| LLC | $800 | N/A | Based on gross receipts (Form 568) |
| C Corporation | $800 | 8.84% of net income | No |
| S Corporation | $800 | 1.5% of net income | No |
| LP/LLP | $800 | N/A | No |
Forms You’ll Need
- Form 100 – C Corporations
- Form 100S – S Corporations
- Form 568 – LLCs
- Form 3536 – Estimated LLC Fee
- Form 3522 – LLC Annual Franchise Tax
- Form 3586 – C/S Corp Extension Payment
Examples Based on Entity Type
Example 1 – LLC with $300,000 Gross Receipts
- Franchise Tax: $800
- Gross Receipts Fee: $900
- Total Due: $1,700
Example 2 – C Corporation with $100,000 Net Income
- Franchise Tax: 8.84% of $100,000 = $8,840
- Greater than $800 minimum, so $8,840 owed
Example 3 – S Corporation with $50,000 Net Income
- Franchise Tax: 1.5% of $50,000 = $750
- Minimum tax still applies, so $800 due
Step-by-Step Guide to Filing and Paying
Step 1: Identify Your Entity Type
Determine whether you are taxed as an LLC, C corp, or S corp.
Step 2: File the Correct Form
- LLC: File Form 568
- C Corp: File Form 100
- S Corp: File Form 100S
Step 3: Pay Franchise Tax & Fees
- LLCs use Form 3522 and Form 3536
- C/S corps pay using Form 3586 if filing extension
Step 4: File Annually by Deadline
- April 15, 2025 (for calendar-year entities)
- File extension if needed, but tax must still be paid by April 15
Penalties for Non-Compliance
- Late Payment Penalty: 5% of unpaid tax + 0.5% per month
- Failure to File: $2,000 penalty for doing business without registering
- Suspension/Forfeiture: Entity loses legal rights and protections in CA
Conclusion
The California Franchise Tax is a cost of doing business that every LLC or corporation must factor into their annual budget. Filing and paying on time not only keeps your business in good standing but avoids costly penalties and suspensions.
Call to Action
Not sure how much you owe or which forms apply to your entity?
Schedule a consultation with Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant and IRS Enrolled Agent with deep experience in California franchise taxes and cross-border entity compliance.
📅 Book your appointment here
FAQs – Common Franchise Tax Questions
Q1: Does my LLC owe franchise tax if it had no income?
Yes, active California LLCs owe the $800 minimum, even with zero income.
Q2: What if my corporation is suspended?
You must file and pay all back taxes and file for revivor to restore good standing.
Q3: Can I avoid the $800 franchise tax in the first year?
Only certain qualified new corporations are exempt under Revenue & Taxation Code §23153(f).
Q4: Are single-member LLCs exempt from franchise tax?
No, unless they elect to be treated as a disregarded entity and file under a parent corporation.
Q5: How do I calculate the LLC gross receipts fee?
Use Form 3536 to estimate based on California-source gross receipts ranges (starting at $250,000).
About Our CPA
Anshul Goyal, CPA EA FCA is a U.S.-licensed Certified Public Accountant and IRS Enrolled Agent, also a Fellow Chartered Accountant from India. Anshul specializes in franchise tax compliance, entity structuring, and IRS representation. With over 15 years of experience, he’s helped over 2,000 clients navigate California and federal tax laws and saved over $200 million in taxes.
Disclaimer
This blog is for educational purposes only and does not constitute legal or tax advice. Business tax rules can change and vary by entity type. Consult a qualified CPA or tax advisor before making decisions regarding your California franchise tax obligations.