Most businesses are charged a California corporate tax, a California alternative minimum tax (AMT), and/or a California franchise tax, depending on what kind of business entity they’re operating. Income that passes through your business is also subject to the California state income tax.
Here’s how to figure out which California state taxes you need to pay.
Paying state business taxes in California, according to business type
Here’s a summary of which California state taxes apply to which business entity type.
Keep in mind this table doesn’t include the income taxes that sole proprietors, general partners and pass-through entity owners must pay on their share of business income, which we’ll cover in the next section.
| What kind of business do you have? | Did it report a net income (Y/N)? | What state taxes do you have to pay? |
|---|---|---|
| C Corporation | Y | Corporate tax (8.84%) |
| C Corporation | N | AMT (6.65%), $800 Franchise Tax |
| LLC taxed like a corporation | Y | Corporate tax (8.84%) |
| LLC taxed like a corporation | N | AMT (6.65%), $800 Franchise Tax |
| S Corporation | Y | 1.5% Franchise Tax |
| S Corporation | N | $800 Franchise Tax |
| LLC | Y | Franchise Tax (see table above) |
| LLC | N | $800 Franchise Tax |
| Limited Partnership (LP) | Y or N | $800 Franchise Tax |
| Limited Liability Partnership (LLP) | Y or N | $800 Franchise Tax |
| General Partnership | Y or N | No business taxes |
| Sole Proprietorship | Y or N | No business taxes |
California corporate taxes
The California corporate tax rate is 8.84% (flat rate). This tax rate applies to C corporations and LLCs that elect to be treated as corporations and report net taxable income (i.e. a profit). Without a profit, they pay a flat alternative minimum tax (AMT) of 6.65%.
If you’re paying either of the above taxes, you’ll have to file a California Corporation Franchise or Income Tax Return (Form 100) with the FTB.
Your California corporate tax return is due on the 15th day of the 3rd month after your fiscal year ends if you follow a fiscal year, and on March 15th if you don’t. You have until the next business day to file and pay if the due date happens to fall on a weekend or holiday.
California franchise taxes
C corporations that don’t report a net income as well as pass-through entities must also pay a California franchise tax.
Examples of pass-through entities include:
- S corporations
- LLCs
- Limited partnerships (LPs)
- Limited liability partnerships (LLPs)
In some states franchise taxes are also called privilege taxes—as in, you’re paying for the privilege of doing business in that state. In California, they’re calculated differently depending on your business entity type.
S corporations in California must pay a franchise tax of 1.5% of their net income or $800, whichever amount is larger.
LLC franchise taxes are $800, but LLCs that make more than $250,000 in income per year are also subject to an LLC fee. This fee is based on the amount of income the LLC makes.
| LLC Net Income | California Franchise Taxes |
|---|---|
| $250,000 - $499,999 | $900 |
| $500,000 - $999,999 | $2,500 |
| $1,000,000 - $4,999,999 | $6,000 |
| $5,000,000 or more | $11,790 |
LPs and LLPs pay a flat franchise tax of $800 a year, while general partnerships and sole proprietors do not pay the franchise tax.
California state income tax
Self-employed workers, independent contractors and unincorporated businesses in California might not have to pay state corporate or franchise taxes, but most still have to pay state income taxes. Same goes for people who earn income from pass-through entities like S Corporations and LLCs.
The California state income tax rate ranges from 1 to 12.3 percent. Your income tax rate is based on which of the nine California tax brackets you fall into, and also your filing status.
If your filing status is “Single” or “Married Filing Separately,” you’ll calculate your 2020 California income tax based on the following schedule:
| Over | But not over | Your tax rate is |
|---|---|---|
| $0 | $10,412 | 1% |
| $10,412 | $24,684 | 2% |
| $24,684 | $38,959 | 4% |
| $38,959 | $54,081 | 6% |
| $54,081 | $68,350 | 8% |
| $68,350 | $349,137 | 9.30% |
| $349,137 | $418,961 | 10.30% |
| $418,961 | $698,271 | 11.30% |
| $698,271 | And over | 12.30% |
Consult the FTB’s schedules here if you’re filing your taxes jointly with a spouse, are a qualifying widow(er), or are using the “Head of Household” filing status.
Californians file their income taxes using FTB Form 540, the California Resident Income Tax Return. The filing and payment deadline for your California state tax return is normally April 15th, but this gets moved to the next business day if it falls on a weekend or holiday. Next year, your California state tax return is due on April 15, 2025.
Quarterly state tax payments
Similar to the quarterly estimated tax payments you must make to the IRS for federal taxes, you must also make quarterly payments to the FTB for state taxes. This only applies if you expect to owe at least $500 in California state taxes this year (or $250 if filing jointly with a spouse).
You can calculate your estimated state taxes for the year using the worksheet on the bottom of FTB Form 540-ES, which you can request a PDF copy of using this page.
For 2022, quarterly state tax payments are due on the following dates. Unlike IRS payments, which split your estimated taxes into four even amounts across the year, the FTB follows a 30%, 40%, 0%, 30% scheme:
| Payment | Amount of tax due | Due date |
|---|---|---|
| 1 | 30% | April 15, 2024 |
| 2 | 40% | June 17,2024 |
| 3 | 0% | September 15, 2024 |
| 4 | 30% | January 15, 2025 |
Tax deductions when filing California state taxes
The standard deduction amount available to every Californian filing their 2023 state tax return is $5,363 for single filers and $10,726 for those filing jointly.
If you have lots of business expenses that you’ve kept track of using bookkeeping software or a ledger, you might be better off not using the standard deduction. Claiming your business expenses as tax deductions might lower your taxable income even more than the standard deduction does.
Any money you spend on miscellaneous, unreimbursed business expenses counts towards your business deduction. Some examples expenses include:
- Certain medical expenses
- Home office costs
- Real estate taxes
- Advertising
- Insurance
- Legal and professional fees
The 2% rule for business expense deductions
If you are using itemized deductions, you can only deduct the portion of certain miscellaneous business expenses—tax prep costs, unreimbursed job expenses, and advisory fees, for are a few—that exceeds 2% of your adjusted gross income (AGI).
For example, let’s say you’re a single filer and your 2022 AGI is $60,000.
You spend $6,000 on business expenses.
You now face a choice:
- You could claim the standard $4,601 deduction
- Or you could claim a $4,800 deduction from your business expenses
How did we get the $4,800 deduction?
2% of $60,000 is $1,200. According to the 2% rule, we can only start deducting business expenses after the $1,200 total. This means we have to ignore the first $1,200. So we subtract $1,200 from the total amount of business expenses ($6,000), which equals $4,800. In this case, it’s clear you should take the standard deduction.
Just remember that to claim these deductions, you’ll need to have the correct documentation to back them up.
How do I file and pay my California state taxes?
Eligible businesses and tax preparers can use the FTB’s e-filing system, CalFile. You’ll need to create a MyFTB account before using CalFile. The state recommends signing up for direct deposit to ensure the “fastest refund possible.”
Bench’s team of bookkeepers and tax experts can help you file both your federal and state taxes. They’ll ensure your financials are organized, up-to-date, and ready for tax filing while also making sure you receive every deduction and tax credit your business is eligible for. Find out about our tax advisory and filing services here.
