Franchise-Tax Statute & Prior Relief
- Code Base. California Revenue & Taxation Code (R&TC) §§ 17941 & 17946 impose an $800 “annual LLC tax” on every LLC formed or “doing business” in the state, regardless of profit.
- Temporary Holiday (AB 85). LLCs formed Jan 1 2021 – Dec 31 2023 enjoyed a first-year waiver under A.B. 85. That sunset on Dec 31 2023; start-ups organized in 2025 no longer qualify automatically.
- Federal Tie-In. Entity classification flows from IRC §7701 & Reg. §301.7701-3—but California’s $800 minimum is a state-level charge, not a federal tax.
What Exemptions Still Exist in 2025?
| Path to “$0 in Year 1” | Legal Hook | Catch |
|---|---|---|
| Short-Form Cancellation (SOS LLC-4/8) within 12 months of formation | R&TC §17947; FTB 3556 guidance | LLC must cease business & file final return; fee already paid is not refunded. |
| 15-Day Rule – Tax year ≤ 15 days and no business conducted | R&TC §17946 | Works only for late-December filings or delayed SOS “future file date.” |
| Deployed Military Owner Exemption (small business, loss or inactive) | R&TC §17941(d)(1)(B) | Runs 2020-2030, must stamp “Deployed Military” on Form 568. |
Bottom line: Outside the narrow rules above, a 2025 California LLC owes the $800 by the 15th day of the 4th month after formation—paid with FTB Form 3522.
Detailed Compliance Guide
- Timing Play (15-Day Rule)
- Form LLC on Dec 17 2025 with a taxable year ending Dec 31 2025.
- Conduct no business until Jan 1 2026.
- Because the 2025 tax year lasted ≤ 15 days, no $800 is due for 2025.
- Short-Form Cancellation Walk-Through
- File SOS Form LLC-1 today; entity approved.
- Decide to pivot before revenue starts.
- Within 12 months, file SOS Form LLC-4/8 and mark final FTB Form 568 “Initial/Final.”
- LLC pays $0 annual tax for its first (and only) year.
- Remember: any $800 already remitted is non-refundable.
- Regular Route (Most Start-Ups)
- Calendar the due date—example: Organized Mar 10 2025 → $800 due Jul 15 2025.
- Pay via Web Pay or mail FTB 3522 to PO Box 942857, Sacramento CA 94257-0631.
Worked Example – NeoCode AI LLC
- Filed: Jan 8 2025
- Needed right away → cannot delay > 15 days
- No cancellation planned → owes $800
- Cash Strategy: Founder prepays the $800 and considers the Pass-Through Entity Elective Tax (PTET) to offset high personal CA rates (elect by FTB Form 3893 by June 15 2025).
Conclusion
For 2025 formations, the automatic first-year waiver is history. Only niche tactics—the 15-day rule, short-form cancellation, or the deployed-military carve-out—eliminate the $800. Everyone else should budget for the payment and focus on bigger tax-saving moves like PTET elections or R&D credits.
Call to Action
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Anshul Goyal, CPA EA FCA, is a licensed Certified Public Accountant in the United States and admitted to practice before the IRS as an Enrolled Agent. He represents clients in tax litigation and is a cross-border tax expert, assisting American businesses and Indians living in the United States with IRS compliances.
Disclaimer
This blog is intended for educational purposes only and should not be considered as legal or tax advice. Please consult your CPA for professional guidance based on your specific situation.
Top 5 FAQs
| Question | Quick Answer |
|---|---|
| 1. Did the AB 85 waiver extend into 2025? | No—last eligible formation date was 12-31-2023. |
| 2. Can I claim a refund if I cancel and already paid $800? | No. Payments made before short-form cancellation are not refundable. |
| 3. Does a single-member LLC (disregarded) still owe $800? | Yes, entity classification under IRC §7701 does not affect CA’s fee. |
| 4. Can I “future-file” my Articles to start next year? | Yes—request a future effective date (e.g., 01-02-2026) when filing LLC-1. |
| 5. Is the $800 deductible on my federal return? | Generally yes, as a business expense under IRC §162. |
About Our CPA
Anshul Goyal, CPA EA FCA brings 15 years of U.S. & international tax expertise, 20,000+ returns filed, and over $200 million in client savings. As Managing Partner at Kewal Krishan & Co., he guides founders through launch, compliance, and growth across California and beyond.