by LawInc Staff
October 20, 2020
Looking to get a head start with your California corporation or LLC and avoid potential filing backlogs right after the New Year?
Consider incorporating or forming an LLC between December 17 and December 31.
California’s 15-day rule allows you to incorporate or form an LLC during the last 15 days of the year and avoid filing tax returns for 2020.
Pursuant to California Franchise Tax Board Publication 1060, corporations with a tax year of 15 days or less will not need file a tax return as long they do not conduct any business during those days:
California Corporation $800 Minimum Tax
California corporations are required to pay an $800 minimum tax starting the second year of existence. This means that a corporation filed with the California Secretary of State on December 1 would be required to pay the $800 minimum tax by April 15 of the following tax year.
However, a corporation that files within the last 15 days of the year, and does not engage in any business during those 15 days, would not need to pay the $800 minimum tax the following year.
For example, Acme, Inc. files its Articles of Incorporation with the California Secretary of State on December 18, 2020. The corporation does not engage in any business activity between December 17 and December 31, 2020.
Acme, Inc. meets the requirements of California’s 15-day rule and will not need to file a California tax return for 2020. January 1, 2021 is the first day of its first tax year.
The $800 minimum tax would not be due until 2022.
LLCs are basically subject to the same 15-day rule. According to FTB 3556, the $800 tax is waived if no business is conducted during the 15 days and the LLC is filed between December 17 and 31:
Annual California LLC $800 Minimum Tax
The California Franchise Tax Board requires newly formed California LLCs to pay an $800 minimum tax within approximately 3 and a half months of formation.
Technically, the $800 minimum tax prepayment is due by the 15th day of the 4th month after LLC formation. The next tax year, the $800 minimum tax is due on April 15.
So if you form an LLC on December 1, and you file taxes on a calendar year basis, the $800 minimum tax is due by March 15. Another $800 payment would be due again on April 15.
However, if you form the California LLC on December 17, and do not conduct any business between December 17 and December 31, you would only need to make one $800 payment to the Franchise Tax Board on April 15.
Starting in 2021, California LLC’s will not be required to pay the $800 minimum tax until the second year of existence.