January 2009 - LLC Annual Fees – Tax Law Changes

LLC ANNUAL FEES – TAX LAW CHANGES

Based on recent California tax legislation, LLCs (limited liability companies) are required to pay the annual fee twice in 2009.

Annual “Fee” Definition

The annual “fee” is based on the gross California source income of an LLC and is in addition to the annual minimum tax of $800. The fee only applies to LLCs if the total California source income is equal to or greater than $250,000. Therefore, many LLCs will NOT be affected by this legislation.

Change in Law

Based on prior law, the annual fee was required to be paid by the 15^th day of the fourth month following the taxable year. For example, the 2007 annual fee was due April 15, 2008, and the 2008 annual fee is due April 15, 2009.

For taxable years beginning on or after January 1, 2009, the annual fee must be paid by the 15^th day of the sixth month of the current year, meaning the 2009 annual fee is due by June 15^th, 2009. Please note the following 2009 payment schedule for a calendar-year LLC:

April 15, 2009 2009 Annual Tax of $800

April 15, 2009 2008 Annual Fee (based on gross income)

June 15, 2009 2009 Annual Fee (based on gross income)

Penalty for Late Payment

LLCs that fail to pay the 2009 annual fee by the due date are subject to a penalty of 10% of the late fee. The same 10% penalty applies whether the fee is late for one day or nine months. The penalty will NOT apply if the LLC pays an annual fee equal to or greater than the prior year fee.

For example, a calendar-year LLC pays a 2008 annual fee of $6,000 by April 15, 2009. The LLC pays an estimated 2009 annual fee of $6,000 on July 1, 2009 (late). Based on total 2009 gross income, the LLC calculates an actual annual fee of $6,000. The LLC must pay a penalty of $600 (10% of $6,000 fee paid late).

For example, a calendar-year LLC pays a 2008 annual fee of $900 by April 15, 2009. The LLC pays an estimated 2009 annual fee of $900 by June 15, 2009. Based on total 2009 gross income, the LLC calculates an actual annual fee of $2,500. The LLC must pay the additional fee of $1,600 ($2,500 fee less $900 paid) by April 15, 2010, but the LLC will not be subject to the 10% penalty on the $1,600.

Questions?

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