Ted Mittelstaedt ⋅ Portland, OR Portlandia IT LLC ⋅ 20 years experience

If a licensed CPA files your paperwork with the state you will be fine. States look for that, if you try doing it yourself that's a flag for an audit investigation.

Jennifer Polhemus ⋅ Santa Monica, CA Precision Research (self-employed) ⋅ 25 years experience

This publication will help
https://www.ftb.ca.gov/forms/misc/1038.pdf

I closed an LLC for my spouse awhile back and I didn't need or obtain any atty help or other paid assistance.

Bill Seabrooke ⋅ Cumming, GA J. William Seabrooke, CPA, P.C. ⋅ 36 years experience

Byron,

I would certainly start with the California Secretary of State, whose office should have approved your LLC. They may have a checklist for this situation. As has been stated, the California Franchise Tax Board would be another office to contact. Additionally, you will need to file final tax returns, notify the appropriate taxing authorities, and then close all of your business accounts.

You will have to report the revenues and expenses for all years in which your LLC was in operation, unless you are provided with an exemption from the taxing authority.

If there were formation and filing expenses associated with the existing LLC, and if you may intend to operate the LLC again in the future then you may consider keeping the LLC open. However, you will still have to file the periodic tax returns unless you are granted an exemption from doing so by the State of California. Every business has a charter which states the business purposes and business activities in which the entity intends to engage. If you engage in business activities in the future that are not franchise-related, you can have an attorney assist you in modifying the charter and then you should notify the California Secretary of State.

This hyperlink should provide you with some additional information regarding what tasks and notifications are required:

https://www.google.com/?gws_rd=ssl#q=What+do+I+need+to+do+to+close+an+LLC+in+California

I also recommend contacting an attorney in the State of California who is thoroughly familiar with LLCs that operate in California (Domestic and Foreign). He/she should be able to answer all of your specific questions.

Semper Fidelis,

Bill Seabrooke, CPA

martin kelly ⋅ Wilmington, DE ISM Insurance, Inc. ⋅ 30 years experience

Hey Byron:

To shut down the LLC you must file a final tax return and certificate of dissolution. If there are any assets that need to be liquidated, it becomes more complicated and depends upon state law.

And YES, check your own CA regs

Best,

Martin

Raymond Harris ⋅ Atlanta, GA AT&T ⋅ 33 years experience

You need to talk with an tax attorney. California is one of the most aggressive states when it comes to this issue. They have even tried to tax retired military because they were stationed there during part of their career. Better to spend a little now and be sure this is taken care of than have multiple headaches later.

Alyson Iuchs ⋅ Edwards, CA Photogenic, Inc ⋅ 5 years experience

Q: In California, franchise business tax is due after first year. If I close it before then, do I need to make arrangements for paying it?

It depends if you made a profit during that time. If you did receive a profit, you’ll need to make arrangements to pay the minimum $800 franchise tax. However, if you did not receive a profit and you filed on or before January 15th, then you will not have to pay anything.

Q: Am I able to deduct business expenses from the year while there was an LLC if I close it before the end of the year?

Yes. Since you closed the LLC, you can claim any business expenses during the year it was running. Some of these business expense deductions include:

· Employee salaries and wages
· Contract labor costs
· Vehicle operating expenses
· Rent on business property
· Depreciation
· Utilities
· State and local taxes
· Employer taxes, including FICA, FUTA, and state unemployment taxes

Now, if you kept the LLC open, the expenses you’ve paid before your LLC was officially up and running are considered capital expenses. Those are the expenses that you incur to get your business up and running, which will be a long-term benefit. Generally, you won’t be able to deduct these expenses until you close the business or sell it (there is a special tax rule that allows business startups to deduct up to $5,000 in that first year, and then deduct the remainder of those costs evenly over the next 15 years).

However, since you have closed the business, you can deduct those expenses in full.

If you'd like more information on individual and business taxes, here is an academic resource that covers details in full: https://onlinebusiness.northeastern.edu/neu-mst/individual-and-business-tax-deductions-resource-guide

Q: Are there any benefits to keeping the LLC open?

There are some benefits of having an LLC open. One advantage is that as an LLC owner, you will not be subjected to double taxation like a corporate owner would. Corporate owners are required to pay taxes on the net income of the corporation, but then they would have to pay taxes on any divided income they may have received.

Depending on how much income you earn, the tax rate for the LLC may be lower than the taxes a corporation would have to pay. In an example given by The Balance, the corporate tax rate for $75,000 taxable income may be 34%, but the personal tax rate for the same income would only be 25%.

We do recommend that you speak with your accountant for more information.

Byron Chen ⋅ San Diego, CA U.S. Marine Corps, Captain ⋅ 6 years served

Thank you everyone. Your input has been very helpful.

Byron