Federal, Sales, Self-Employment and California State Taxes Payable by Your LLC
Business taxes are a fact of life, and your CA LLC will need to pay a variety of taxes to both the federal and California governments. We’ll cover all the main taxes in California including self-employment, payroll, federal, California state tax and California sales tax.
If you want help with your taxes, Incfile provides a complete Business Tax Filing service.
How Your California LLC Will Be Taxed
The profits of a California LLC are not taxed at the business level like those of C Corporations. Instead, tax for a California LLC works as follows:
- California LLC owners pay self-employment tax on business profits
- California LLC owners pay CA state tax on any profits, less state allowances or deductions
- All LLC owners pay federal income tax on any profits less federal allowances or deductions
- Some CA LLCs pay California sales tax on products
- Employers pay payroll tax on any salaries they pay to employees
- Employees pay federal, state and payroll tax on their earnings
Items 1, 2 and 3 are taxed as “pass-through” income for any LLC owners, managers or members who receive profits from the business. Any profits are reported on federal and California personal tax returns, and that’s where you will pay those taxes.
California Taxes Payable to the CA Tax Service Center
There are two main types of tax that you will pay to the California Tax Service Center: California state income tax and California state sales tax.
California State Tax on Your LLC Earnings
As a California business owner, you will need to pay CA state tax on any money you pay to yourself. These earnings flow through to your personal tax return, which is where you will pay California income tax. You will be taxed at the standard rates for California state taxes, and you will also get to apply regular allowances and deductions.
Any salaried employees will also need to pay personal California state taxes.
The California state tax rates are between 1 percent and 12.3 percent, depending on your taxable income.
Get more details on the California state tax here.
California Sales Taxes on LLC Sales
If you sell physical products or certain types of services, you may need to collect sales tax (also known as sales and use tax) and then pay it to the CA Tax Service Center. California sales tax is collected at the point of purchase. California sales tax rates do vary depending on the region, county or city where you are located.
You will typically need to collect California sales tax on:
- Tangible, personal property and goods that you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
- Certain services that your California business might provide
Most states do not levy sales tax on goods that are considered necessities, like food, medications, clothing or gas.
Get more details on the California sales tax here.
California Sales Tax Rates
Sales tax rates do vary between states, counties and cities. Typically, the state will set a base sales tax rate, then specific counties and cities may levy small additional sales tax amounts on top of that. Here are the sales tax rates for the major cities in California:
- Los Angeles: 9 percent
- San Francisco: 8.75 percent
- San Jose: 9 percent
- San Diego: 8 percent
Federal Self-Employment and Income Taxes for Your California LLC
There are a couple different federal taxes that every LLC will need to pay, including California LLCs. These are self-employment tax and federal income tax, which are taxed as “pass-through” income via your tax return forms.
California LLC Federal Self-Employment Tax
All California LLC business members or managers who take profits out of the LLC will need to pay self-employment tax. This tax is also known as FICA, Social Security or Medicare tax. It applies to all the earnings you withdraw from your California business. The current self-employment tax rate is 15.3 percent.
You will be able to deduct your business expenses from your income when working out how much self-employment tax you owe. Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:
- On profits of $60,000, you would pay self-employment tax of $9,180
- On profits of $100,000, you would pay self-employment tax of $15,300
- On profits of $140,000, you would pay self-employment tax of $21,420
- On profits of $160,000, you would pay self-employment tax of $24,480
Pay Less Self-Employment Tax by Treating Your California LLC as an S Corporation
The Internal Revenue Service allows LLCs to ask to be treated as an S Corporation for tax purposes. This can help you reduce the amount of self-employment tax that you pay by declaring some of your income as salary and other income as distributions or withdrawals.
You can do this by making an “S Corporation Tax Election” with the IRS using a form known as Form 2553. We can file your Form 2553 with the IRS on your behalf.
Incfile Form 2553 S Corporation Tax Election for an LLC service
Speak to your accountant for more information on reducing your California LLC self-employment tax through an S Corporation tax election.
California LLC Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your California LLC. The amount of income tax you pay depends on your earnings, current income tax brackets, deductions and how you file.
You only pay federal income tax on your California LLC profits that you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus LLC business expenses and other deductions for areas such as healthcare and some retirement plans. Speak to your accountant for more information.
You can find details of federal income tax brackets and tax calculators online.
Employer and Employee Taxes for Your California LLC
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your own unique situation.
California LLC Employer Payroll Tax Withholding
All employers must collect and withhold payroll tax from their employees when they receive their salaries. You would normally withhold 7.65 percent of the taxable salary that you pay to your employees.
California LLC Federal and State Tax Withholding
You may also choose to withhold federal and California state income tax on the wages you pay to employees. Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and California state income tax, your employees may need to file their own tax returns.
California LLC Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, like employee compensation insurance or unemployment tax. There will also be other requirements you have for employees.
Get more requirements from the California Department of Industrial Relations website.
Other Taxes and Duties for Your California LLC
Depending on the industry you are in, your California LLC may be liable for certain other taxes and duties. For example, if you sell gasoline you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods you may need to pay certain duties. Speak to your accountant about any other taxes you may need to withhold or pay.
Estimated Taxes for Your California LLC
Most California LLCs will need to pay estimated taxes throughout the year, depending on the amount of income and profit you expect to make. The most common types of estimated tax are:
- Federal income tax
- Federal self-employment tax
- California state tax
Most California LLCs will pay estimated taxes four times a year. Speak to your accountant for more information.
FAQs on California LLC Business Taxes
Does California Have Sales Tax?
Yes. California does have a sales tax, which may vary among cities and counties. You can find more information above.
Does California Have a State Tax?
Yes. California does have a general state income tax. You can find more information above.
What Is the Sales Tax Rate in California?
We have listed common sales tax rates in California cities above.
Do I Need to Pay Estimated Taxes?
Yes. In most cases you must pay estimated taxes on your California tax, federal income tax and self-employment tax. Speak to your accountant for more information.