If you plan to start a business in the State of California, you should know that sales tax is not the only type of tax you’ll have to worry about. Under the Business Tax and Fee Division, there are more than 30 different types of business taxes in California, including fee programs that may apply to your business type.
Types of Business Taxes (in California)
Those who are contemplating the idea of starting a business in California will have to get familiar with the three basic types of taxes that are collected from businesses. These are alternative minimum tax, franchise tax, and corporate tax. Here’s a quick breakdown of all three types of California business taxes.
Corporate Tax
In the State of California, corporate tax is set at a flat rate of 8.84%. The corporate tax applies to LLCs and C corporations that have elected to be treated similarly to corporations and have to report their net income (taxable). However, if your business is running without a profit, then you will have to pay an alternative minimum tax or AMT that’s set at 6.65%.
Franchise Tax
In California, the amount of franchise tax you will have to pay depends on the classification of your business tax. This could mean anywhere from $800 for a partnership (as in LLCs, LPs, etc.), or 1.5% for a S corporation, and up to 8.84% for a C corporation.
Alternative Minimum Tax
As mentioned, the AMT for businesses operating in California is set at 6.65% (apart from the minimum franchise tax). Under California tax law, special treatment is granted to some income types, which allows for credits or deductions on specific expenses. However, those corporations which benefit from these exemptions have to pay an alternative minimum tax.
The AMT basically recalculates your income tax by including tax preferences in the adjusted gross income. The AMT uses separate rules for calculating all taxable income after the special deductions, which is why you need the guidance of a tax expert to determine the final taxable figure.
Why You Need a California Business Tax Consultant?
In California, tax types and their rates vary depending on the type of business. Furthermore, tax codes for business owners in California are often updated, which is why it’s smart to hire a professional who will be familiar and up-to-date with the State of California income tax filing requirements.
One of the benefits of hiring a professional business tax consultant in California is that you get to take advantage of their wealth of knowledge on key tax areas such as Repatriating Money from Foreign countries, FBAR Filing (Foreign Bank Account Reporting), Asset Inheritance and Gift from Foreign countries, Incorporation of US Entity by International Clients, International Tax reporting and compliance of selling property abroad.
Ending Note
If the thought of doing your own business taxes in California sends a shiver up your spine, why not call in the experts at Nidhi CPA, who have years of experience in providing business tax services in the Bay Area, including South Bay, Sunnyvale, San Jose, Milpitas, Fremont, East Bay, Trivalley, Pleasanton, Livermore, Dublin, and San Ramon.
