Getting Your Business Taxes in Order…
what will you owe in 2014?
Your form of business determines which income tax return form you’re going to have to file. California businesses are subject to a franchise tax, corporation income tax, and/or an alternative minimum tax.
Below are the types of typical California businesses and how to file:
Sole proprietorship– owning an unincorporated business on your own (husband and wife/ domestic partnerships included):
You will file your business income and expenses on Federal Form Schedule C, Profit or Loss from Business, and provide a copy of your federal return.
The tax rate depends on the proprietor’s total taxable income.
A sole proprietorship will include all sources of income when filing.
Typically, estimated tax payments are required if you expect to owe at least $500 in taxes for the current year and you expect your withholding and credits to be less than the smaller of:
90 percent of the tax on your current tax return, or
The tax listed on your prior year tax return including Alternative Minimum Tax. Prior year exception is eliminated if your adjusted gross income is greater than $1 million.
A Partnership involves two or more who agree to create a business and share the profits and losses. All of the partners share equal rights and responsibilities in managing the business. Each general partner assumes full personal liability for the debts and obligations of the partnership.
Partnerships need to file a California Form 565, Partnership Return of Income. The partnership provides each partner with a Schedule K-1 that states the partner’s distributive share of the partnership’s items of income, deductions, and credits.
A limited partnership must pay an annual tax of $800.
There are no estimated tax requirements for a partnership. Partners may have to make estimated tax payments for their own reporting purposes.
A partnership may also be required to withhold taxes if the partnership distributes California source taxable income to a nonresident partner.
C Corporations are taxed annually on their earnings and need to file a California Form 100, California Corporation Franchise or Income Tax Return. They are taxed on their net income at an 8.84% rate, and shareholders pay taxes at this level as well.
C Corporations’ estimated tax is payable in four installments: The 15th of April, June, September, & December. By filing form 100-ES you can report your estimated taxes-shareholders may have to make estimated tax payments for their own reporting purposes.
There are also S corporations, who are taxed on a net income rate at 1.5% and do not file federal income tax. They do file a California franchise tax and use form California Form 100S to do so. S Corporations must also pay an annual $800 minimum franchise tax.
Just like C Corporations, the estimated tax is paid in the same four installments through form 100-ES.
Finally, the LLC- Limited Liability Company, where the owners (members) are not personally responsible for the debts and liabilities. If LLCs have multiple members they are taxed as a partnership, and if there is only one member it will be treated as a sole proprietor and file a Schedule C (unless they chose to file as a corporation).
LLCs filing as a corporation will fill out a California Form 100 and will be taxed at the 8.84% tax rate. They will also be subject to the $800 minimum tax rate.
LLCs filing as a partnership will use California Form 568 Limited Liability Company Return of Income. They will also pay an annual tax of $800.
Similar to the S and C Corporations, estimated tax is payable for LLC corporations in the same four installments through form 100-ES.
If the LLC is filing as a partnership, the estimated LLC fee is due by the 15th day of the 6th month.
Remember…we can do this for you! Keep us in mind for 2014- Paragon is here to help you file your Business Income Tax!