California tax
Is the California $800 LLC Tax Deductible?
When the annual LLC tax applies, when you're exempt, whether it's deductible on your federal and California returns, and how the LLC fee kicks in at higher revenue — with 2025 figures.
Written by Matt Reese, CPA · 4 min read · Published April 2026·Share on LinkedIn
Key Takeaways
- California's $800 annual LLC tax is due even if the LLC has no revenue — it continues until the LLC is formally canceled.
- The first-year $800 exemption (AB 85) applied only to LLCs formed in 2021–2023 and expired January 1, 2024. LLCs formed in 2024 or later owe the $800 in their first taxable year.
- The $800 is deductible on your federal return as a business expense. It is NOT deductible on your California return.
- At higher revenue, a separate California LLC fee applies on top of the $800 — starting at $900 for income over $250,000.
What the $800 annual tax is and isn’t
California charges a minimum franchise tax of $800to every LLC organized in California or doing business in California. It’s not an income tax — it’s a flat fee for the privilege of operating as an LLC in the state.
The $800 continues every year until the LLC is formally dissolved with the California Secretary of State and a final return is filed. An LLC with zero revenue still owes it. An LLC that’s been dormant for two years still owes it. The obligation ends only when the entity ends.
The first-year $800 waiver has expired
Is it deductible?
Federal return: Yes — the $800 California LLC tax is deductible as a business expense on your federal Schedule C (for sole props and SMLLCs) or on Form 1065/1120-S. State taxes attributable to a business are deductible under IRC §162. At a 24% federal rate, the $800 saves you $192.
California return: No — California taxes are not deductible on your California return. You cannot use a state tax payment to reduce state taxable income. This is a common source of confusion; the deductibility exists only at the federal level.
The LLC fee: a separate charge at higher revenue
At higher revenue levels, California imposes a separate LLC fee on top of the $800 minimum tax. This fee is based on total California-source income (not net profit), not federal AGI:
| Total California income | Annual LLC fee | Plus $800 minimum tax | Total annual obligation |
|---|---|---|---|
| $0 – $249,999 | $0 | $800 | $800 |
| $250,000 – $499,999 | $900 | $800 | $1,700 |
| $500,000 – $999,999 | $2,500 | $800 | $3,300 |
| $1,000,000 – $4,999,999 | $6,000 | $800 | $6,800 |
| $5,000,000+ | $11,790 | $800 | $12,590 |
The LLC fee is also deductible on the federal return — but not on the California return.
The $800 vs. S-corp: does entity choice matter?
S-corps in California pay a minimum franchise tax based on net income — with a floor of $800 (same as LLCs). The corporate minimum isn’t necessarily lower than the LLC minimum at most income levels.
The real reason to consider an S-corp election is self-employment tax savings, not the $800 franchise tax. At $100k+ in net profit, the SE tax savings from an S-corp typically dwarf the $800 annual tax cost.
The $800 annual tax is a real cost, not a neutral write-off. Factor the net cost — after federal deduction — when evaluating whether the entity structure is worth maintaining.
Should you dissolve a dormant LLC to stop the obligation?
If your LLC has no activity, no clients, and no purpose, the right answer is usually to dissolve it. The FTB doesn’t care whether you used the LLC. The $800 is due regardless.
Dissolution requires: filing a final Form 568 marked “final return,” then filing a Certificate of Cancellation (Form LLC-4/7) with the California Secretary of State. Until both are filed, the obligation continues.
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Sources & References
Frequently asked
Questions owners actually ask
- Does every California LLC pay the $800 tax?
- Yes — every LLC organized in California or doing business in California must pay the $800 annual minimum franchise tax. 'Doing business' includes generating sales, having employees, or holding property in California. The tax applies even if the LLC had no income for the year, until it's formally dissolved with the Secretary of State.
- My LLC just formed this year. Do I owe the $800?
- Yes. The temporary first-year exemption (AB 85) applied only to LLCs formed between January 1, 2021 and December 31, 2023, and it expired. An LLC formed in 2024 or later owes the $800 for its first taxable year — there is no first-year waiver anymore. The first-year payment is due by the 15th day of the 4th month after you register with the Secretary of State.
- Is the $800 LLC tax the same as the LLC fee?
- No — they're separate. The $800 is the minimum franchise tax, owed by essentially all LLCs regardless of income. The LLC fee is a separate California tax on total income from California sources, applied on a tiered scale starting at $250k. It's possible to owe both: the $800 annual minimum plus a $900+ LLC fee if revenue exceeds $250k.
- What happens if I don't pay the $800?
- The FTB will assess penalties and interest. Ultimately, the FTB can suspend the LLC's status, which prevents you from doing business legally in California. Suspended LLCs can't enforce contracts, can't be sued, and can't use California courts. Reinstatement requires paying all back taxes, penalties, and fees — and filing a Statement of Information with the Secretary of State.
- Should I dissolve my dormant LLC to avoid the $800?
- If the LLC has no meaningful activity and no assets worth protecting, yes — a formal dissolution stops the annual obligation. But make sure there are no pending contracts, liabilities, or open bank accounts before dissolving. You'll file a final LLC return (Form 568), mark it 'final,' and file a Certificate of Cancellation (Form LLC-4/7) with the California Secretary of State.
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Educational content only.This article is for informational purposes and does not constitute tax, legal, or investment advice. Every owner’s facts are different; consult a qualified CPA and advisor before acting. Tax and accounting services are provided through Matt Reese, CPA; investment advisory services are provided through Measured Risk Portfolios, a registered investment adviser. Matt Reese, CPA and Measured Risk Portfolios are separate entities; clients are not required to engage both.