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Paying taxes in California can be a complex enterprise for many small businesses. But failing to do so according to the payment schedule can land business owners in hot water. Understanding how taxes are structured here in California can streamline the process and make filing on time much easier, and we’d like to share some information that California business owners may find useful and how a California business lawyer can help.
How Taxes in California Are Structured
As a California business owner, you will be responsible for paying employment taxes on any workers whom you hire, sales taxes, corporate taxes, and franchise taxes. The taxes that businesses pay are dependent upon their incomes, operational nature, and various legal structures.
Here’s how it breaks down:
- Employment taxes – Unless you are running the show entirely by yourself, you will have to pay employment taxes consisting of personal income tax withholdings, California disability insurance, unemployment insurance taxes, and employment training taxes.
- Sales tax – The rate for the state sales tax is 7.25%, which is considerably higher than some states’ sales tax rates. However, rates can even be higher because some municipalities impose their own city tax rates. In order for retail sales businesses to remain compliant with all applicable tax laws, their owners are required to register their companies with the California Department of Tax and Fee Administration (CDTFA). That is the state agency that is tasked with the collection, reporting, and remittance of all taxes owed to the state of California.
- Corporate taxes – All S-Corps registered in California pay the low rate of 1.5% corporate taxes. But all other corporations must pay a far higher rate of 8.84% on their net income.
- Franchise taxes – All partnerships, corporations, and limited liability companies (LLCs) with operations here in the state must pay a minimum of $800 franchise tax each year to the Franchise Tax Board (FTB). Particularly hard to swallow, this tax must be paid whether the business is in the red or has become inactive.
- California alternative minimum tax (AMT) – No matter how many business deductions a company has, nor the number of legitimate tax credits, they still must pay an AMT of 6.65% instead of corporate taxes due to the company earning no net income.
As you can tell, sorting out your California tax liabilities can be challenging, complex, and confusing. A business law attorney at The Morgan Law Group who understands the nuances of the state’s tricky tax laws can wind up saving you time and money while also keeping you compliant with all aspects of California taxation.
The Importance of Calendaring Tax Dates for California Business Owners
Blowing even a single tax deadline can have a snowball effect on small businesses trying to remain competitive in their specific industry. Don’t get caught having to pay penalties and fees for late tax filings. Below are some important tax due dates that you won’t want to forget:
- March 1 – LLCs and corporations must pay their $800 franchise fees by this date.
- April 15 – Tax Day for corporations to file their tax returns and make any remaining past due payments from the year before.
- June 15 – Second quarter franchise estimated tax payments for all partnerships, S-corps, and LLCs are due.
- September 15 – Third quarter franchise estimated tax payments for all partnerships, S-corps, and LLCs are due.
- December 15 – Fourth quarter franchise estimated tax payments for all partnerships, S-corps, and LLCs are due.
Staying abreast of the above tax dates is always prudent. A California business lawyer can offer structure and guidance to small businesses struggling to remain compliant with the various state tax liabilities.
What Is the State’s Tax Credit System?
Some business owners may cite the high taxes as a reason not to operate small businesses in California. But that would be shortsighted, as the tax credits can offset some of the tax liabilities of a California company. Below are a few examples of tax credits for which small business owners may qualify:
- New Employment Credit – While this tax credit is not available to all companies if the business operates in a specially designated area of the state and hires workers for full-time positions that fulfill certain requirements, they may claim it.
- Research and Development (R&D) Tax Credit – Companies conducting qualified research here in the state can lower their franchise or corporate taxes by claiming a tax credit for research and development.
- California Competes Tax Credit – To be eligible for claiming this credit, businesses must compete to create and retain jobs here in California.
It can be daunting for California business owners to try to remember every eligible tax credit available to California small business owners. A business tax lawyer understands all the legal options for lowering your tax burden by claiming all possible credits.
It’s All About the Records
Like real estate is all about location, with California business tax laws, it’s all in the record-keeping. Each business expense should be recorded, and each receipt captured using reliable financial software. If you are not up to the task of record-keeping, call in the professionals to handle your books and make sure that you pay promptly in full. Should your company’s tax returns get audited, you should be able to back up your deductions with receipts.
Why Retaining a California Business Lawyer Makes Sense
The skilled and knowledgeable business tax law attorneys at The Morgan Law Group understand the complexities of California’s intricate tax laws. With them at the helm of your corporate tax situation, you will have peace of mind knowing that a professional business law attorney claims each eligible tax credit and makes sure that your payments are timely.
Call our office at (310) 388-1954 to speak to a California business lawyer or schedule an appointment to review your corporate tax matters and get you back on track to compliance.
