Congratulations on your new business! As a new business-owner, you will be encountering a myriad of business, tax, and legal issues related to your new business. This sheet is intended to give you an overview of the tax matters that could apply to you. This sheet is not and should not be considered legal advice, as it does not consider the unique circumstances of your business and business activities. If you need legal advice concerning your business activities, please contact us and we will be more than glad to assist you.
- Federal Corporation Taxes. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation. Corporations need to pay income taxes (Form 1120), as well as estimated taxes (Form 1120-W), Employment Taxes (Form 940, 941, 943), and possibly Excise taxes. For more information, click here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Corporations
- State Corporation Taxes. Corporations taxable as a C corporation that organize in California, register in California, conduct business in California, or receive California source income must file California Form 100, California Corporation Franchise or Income Tax Return. If your business does business in other states, you will also need to file state corporation taxes in those states. Other entities that elect to be taxable as a C corporation must file California Form 100 if they receive California source income. The return due date is the 15th day of the 3rd month after the close of the taxable year. Entities formed as corporations under civil law and LLCs that elect to be taxable as a C corporation are subject to a minimum tax of $800. The minimum franchise tax ($800) is due the first quarter of each accounting period and must be paid whether the corporation is active, inactive, operates at a loss, or files a return for a short period of less than 12 months. The minimum tax is waived on newly formed or qualified corporations filing an initial return for their first taxable year.
- Estimated Taxes. Corporations must pay estimated taxes, payable in four installments. Installments are due and payable on April 15, June 15, September 15, and December 15. Corporations complete Form 100-ES to report their estimated taxes. Shareholders may have to make estimated tax payments for their own reporting purposes.
- Registration with California State Franchise Board. Your estimated tax payments will be made with the California Franchise Tax Board, and you will be able to submit them online. Click here for more information: https://www.ftb.ca.gov/index.shtml?disabled=true The current tax rates for corporations are as follows: https://www.ftb.ca.gov/businesses/faq/717.shtml
- Registration with Local City/County. Once you begin doing business, you will need to register to obtain a business/tax license in the city or county that you are operating in, within a certain amount of time (usually 30-45 days). ‘Doing Business’ means actively engaging in any transaction for the purpose of financial gain. Once you begin doing business, we strongly suggest that you immediately file the application for business/tax license at that time, rather than waiting for the end of the applicable filing period. Penalties may be assessed against you if you fail to register or obtain a business license. You can find information about what to file and with what governmental agency by clicking on this link: http://www.calgold.ca.gov/ .
- Income Taxes and Employee Taxes. Shareholders and employees of businesses also need to comply with federal and state tax laws by reporting income.
- Section 83 Elections. If you made a Sec. 83 election, don’t forget to submit a copy of it with your annual tax returns in the year immediately following your business’s first incorporation year.
- Real Estate Sales. There are withholding requirements in connection with the sale of California real estate. Please click here for more details. https://www.ftb.ca.gov/individuals/wsc/California_Real_Estate.shtml
- Property Taxes. Property taxes may be owed pursuant to county assessment, state-assessed property, private railroad car, and timber yield. For more information about property taxes, please click here: http://www.boe.ca.gov/proptaxes/proptax.htm
- Employment-Related Taxes and Insurances. If you have employees or will be hiring employees, you will need to comply with California laws relating to Payroll taxes, Worker’s Compensation Insurance, Unemployment Insurance Tax, and Disability insurance. For more information on labor law requirements for hiring employees, please see the California Employer’s Guide: http://www.edd.ca.gov/pdf_pub_ctr/de44.pdf
- Sales Tax. If you are selling items of any kind, you will need to pay sales tax and obtain a seller’s permit and possibly, a use tax account. Please click here for more information: http://www.boe.ca.gov/sutax/sutprograms.htm To obtain a seller’s permit or use tax account: click here: http://www.boe.ca.gov/info/reg.htm
- Special Taxes and Fees. If your business is involved with alcoholic beverages, tires, tobacco, fuel, telephone/mobile telephone, energy resources, fire prevention, hazardous wastes, marine invasive species, lead, oil, water, underground storage tanks, or similar activities, you may be subject to special taxes. Please click here for more information: http://www.boe.ca.gov/sptaxprog/tax_and_fee_programs.htm
WHERE CAN I GET MORE HELP ON TAX MATTERS? We recommend that clients concerned about any tax matters consult with a tax professional. Because we are not tax lawyers, we are not qualified to provide tax advice. Your CPA will have the best information about you and your company’s unique tax situation to be able to answer your tax questions. This sheet is intended as an overview only to give you a roadmap about the tax issues that could apply to you.