Introduction
Starting a Limited Liability Company (LLC) in California offers many benefits—but it also comes with one of the highest minimum taxes in the country. In 2025, California entrepreneurs must plan ahead to reduce their tax burden legally while remaining fully compliant with the Franchise Tax Board (FTB).
Costs of Forming an LLC in California
Applicable Code: California Revenue & Taxation Code §17941; California Corporations Code §17050
Here are the basic costs:
- Formation Fee: $70 (Articles of Organization)
- Statement of Information: $20 (within 90 days of formation)
- Franchise Tax: $800/year minimum
- Gross Receipts Fee: $900–$11,790 (if gross receipts exceed $250,000)
- Registered Agent: ~$100/year (if using a third-party service)
The $800 Minimum Franchise Tax
Most LLCs must pay this annual minimum tax regardless of profit or activity. It applies to:
- Single-member and multi-member LLCs
- Foreign LLCs doing business in California
- Holding companies with California assets
It’s due on the 15th day of the 4th month after the beginning of the tax year.
When You Can Avoid or Delay the Franchise Tax
First-Year Exemption (AB 85):
- Applies to LLCs formed on or after January 1, 2021
- You are exempt from the $800 tax in your first taxable year
- Does not apply to corporations
Start Near Year-End:
Forming your LLC in November or December means your first tax year is short, and you may qualify for exemption or pay pro-rated fees the next year.
How to Reduce Ongoing LLC Taxes
- Keep gross receipts under $250,000 to avoid the extra fee
- Elect S Corporation status via Form 2553 to potentially reduce overall tax
- Maintain accurate books and claim deductible expenses
- Use retirement plans or health insurance to reduce taxable income
- Avoid nexus with California if you’re out of state and not “doing business” here
Smart Structuring Strategies for California LLCs
- Use a parent LLC in another state (if no California nexus exists)
- Form an S Corporation instead of an LLC if your net income exceeds ~$70,000
- Hold passive investments in a separate, non-California entity
- Ensure proper legal separation between personal and business expenses to avoid audit risk
Step-by-Step Guide to Start an LLC and Minimize Taxes
Step 1: File Articles of Organization (Form LLC-1) with the Secretary of State
Step 2: Appoint a registered agent (yourself or third party)
Step 3: File Statement of Information (Form LLC-12) within 90 days
Step 4: Apply for an EIN with the IRS
Step 5: Open a business bank account
Step 6: Check your first-year exemption eligibility under AB 85
Step 7: File Form 568 annually and pay any gross receipts fees
Step 8: Maintain accurate bookkeeping and review S Corp election if applicable
Conclusion
Starting an LLC in California doesn’t have to come with surprise tax bills. By understanding your first-year exemption, planning for gross receipts, and considering entity structuring, you can run your business legally and tax-efficiently in 2025 and beyond.
Call to Action
Planning to start an LLC in California this year?
Schedule a consultation with Anshul Goyal, CPA EA FCA, a U.S.-licensed CPA and IRS Enrolled Agent who helps entrepreneurs reduce their tax liability while staying compliant.
📅 Book your appointment here
FAQs – Starting a California LLC and Taxes
Q1: Is the $800 franchise tax due in the first year?
Not if your LLC was formed on or after January 1, 2021—you qualify for first-year exemption.
Q2: Do I owe gross receipts fees if my LLC makes no money?
No. You only owe the gross receipts fee if your revenue exceeds $250,000.
Q3: Can I form an LLC in another state to avoid CA tax?
Yes, but only if you don’t do business in California. The FTB has strict “nexus” rules.
Q4: Should I consider forming an S Corporation instead?
If you earn more than $70,000, an S Corporation may result in lower self-employment taxes.
Q5: Can I dissolve my LLC to avoid next year’s tax?
Yes. Cancel before December 31 to avoid owing the $800 tax for the next calendar year.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant in the U.S., an IRS Enrolled Agent, and a Fellow Chartered Accountant. He specializes in business formation, entity structuring, and tax compliance for U.S. and international entrepreneurs. With 15+ years of experience and $200M+ in tax savings, Anshul helps business owners stay legal and efficient.
Disclaimer
This blog is for informational purposes only and should not be considered tax or legal advice. California’s LLC and franchise tax laws change frequently. Always consult with a licensed CPA before forming or dissolving an entity.