Franchise Tax Basics & Legal Authority
- Statute. California Revenue & Taxation Code §§ 17941 & 17946 require every LLC “doing business” in the state to pay an $800 annual franchise tax.
- Federal tie-in. LLCs are classified under IRC §7701 & Reg. §301.7701-3; California respects that classification but imposes its own minimum tax regardless of federal income.
- Extra fee on revenue. LLCs with California gross receipts ≥ $250,000 must also file Form 3536 and pay the graduated “LLC fee” under Cal. Rev. & Tax. Code §17942.
| 2025 Due-Date Calendar
| Action | Form | 2025 Due Date* | Who Must File |
|---|---|---|---|
| Pay first $800 | FTB 3522 | 15th day of the 4th month after formation | Every new or foreign LLC |
| Pay annual $800 (years 2+) | FTB 3522 | April 15, 2025 | Existing LLCs |
| Estimated LLC fee (if ≥ $250k receipts) | FTB 3536 | June 15, 2025 | LLCs meeting threshold |
| LLC Return | Form 568 | April 15, 2026 | All CA LLCs |
*If the date falls on a weekend/holiday, use the next business day.
First-Year “Waiver” Status After AB 85
- Expired Relief. Assembly Bill 85 temporarily waived the $800 for entities formed 01-01-2021 → 12-31-2023. That window closed, so LLCs formed in 2025 owe the tax in their first year.
- No legislative extension has passed as of April 25 2025.
- 15-Day Rule (R&TC §17946). If your tax year is 15 days or less and you did no business in California, the $800 can still be avoided.
Legitimate Ways to Defer or Reduce the $800
| Strategy | Code Reference | Practical Tip |
|---|---|---|
| Time your filing near year-end and remain inactive ≤ 15 days | R&TC §17946 | File Dec 17 2025, begin operations Jan 2026 |
| Cancel before year‐end if pivoting structure | R&TC §17707.8 | File Certificate of Cancellation by Dec 31 2025 |
| Convert to S-Corp (post-formation) | IRC §1362; R&TC §23802 | Does not remove $800 but may cut CA income tax |
| Operate through a Delaware/Wyoming entity but mind “doing business” nexus | R&TC §23101 | Physical presence or $690k CA sales still triggers the $800 |
Detailed Compliance Walk-Through (CA Form 3522)
- Download FTB Form 3522 (or log in to Web Pay).
- Entity ID: Enter your SOS file number.
- Taxable Year: Example “01-FEB-2025 → 31-DEC-2025.”
- Amount Due: Always $800 (ignore LLC fee here).
- Payment Options:
- ACH Debit (Web Pay) – fastest confirmation.
- Credit Card – extra processing fee.
- Check/Money Order – mail to FTB PO Box 942857, Sacramento, CA 94257-0631.
- File & Save the Web Pay receipt or endorsed check for your records.
- Next Step: Calendar the June 15 Form 3536 deadline if receipts will reach $250k.
Worked Example: BrightAI LLC
- Formation: February 1 2025
- Expected CA receipts: $750,000 (AI SaaS subscriptions)
- Payments
- May 15 2025: File Form 3522; pay $800.
- June 15 2025: File Form 3536; pay estimated LLC fee $2,500 (per fee table).
- Federal filing: Schedules appear on IRS Form 1065 & K-1 for members.
- Potential PTET election (Cal. Rev. & Tax. Code §§19900-19906): If members want CA credit for other-state taxes, elect by June 15 2025 via FTB 3893.
Conclusion
For 2025, California has reinstated the $800 franchise tax for every active LLC, with no automatic first-year holiday. Thoughtful timing, early dissolution, or alternative entity structures can postpone—but rarely erase—the obligation. Plan cash flow and compliance dates early to keep penalties away.
Call to Action & Disclaimer
Ready for a custom plan? Schedule a meeting with Anshul Goyal, CPA EA FCA to discuss your 2025 California compliance strategy.
Disclaimer: Anshul Goyal is a licensed Certified Public Accountant in the United States, admitted to practice before the IRS as an Enrolled Agent, and represents clients in tax litigation. He is a cross-border tax expert assisting American businesses and Indians in the United States with IRS compliances. The information above is educational; consult your advisor for guidance specific to your facts.
Top 5 FAQs
| Question | Short Answer |
|---|---|
| 1. Does any LLC formed in 2025 avoid the $800 tax? | Only if the 15-day rule applies or new legislation passes. |
| 2. Is the fee prorated for partial years? | No—$800 applies in full once due. |
| 3. Can I deduct the $800 on my federal return? | Yes, as an ordinary business expense per IRC §162. |
| 4. What if I forget to pay? | A late-payment penalty (5% per month up to 25%) plus interest accrues. |
| 5. Do single-member LLCs taxed as disregarded entities still pay? | Yes—the classification does not affect the CA minimum tax. |
About Our CPA
Anshul Goyal, CPA EA FCA, commands 15 years of U.S. and international tax experience, over 20,000 returns filed, and $200 million in client savings. He leads Kewal Krishan & Co., delivering full-cycle tax, bookkeeping, and advisory solutions nationwide.