The $800 Tax
MONEY MEETS TAX · EPISODE 03
Los Angeles · February 2024
Money & Tax in this episode
Making the business official · Forming a California LLC · $800 annual tax
Evan had been an LLC owner for less than a week when he found an article telling him he didn’t owe the $800.
He read it again.
New California LLCs are exempt from the $800 annual tax in their first year.
That was not what Arthur had told him.
Evan opened another result.
Same answer.
He leaned back in his chair.
Maybe Arthur had been talking about the second year.
That would make more sense.
The LLC itself had been easy enough.
Evan had opened a separate bank account, moved his consulting software to a business card, and updated the invoice he planned to send to his next client.
There was something satisfying about seeing the work separated from everything else.
Daisy noticed the new debit card on the kitchen counter.
“That’s the business one?”
“Yeah.”
“It looks exactly like your other one.”
“It comes out of a different account.”
“I figured.”
Evan put it in his wallet.
“I’m keeping everything separate now.”
Daisy nodded.
“Very official.”
He decided not to respond.
Now he was sitting at the same table, wondering whether the first bill Arthur had warned him about even applied.
He went back to the article.
Then he noticed the date.
2022.
Evan opened the other page.
He added the year to his search.
California LLC first year $800 2024
The results changed.
He texted Arthur.
I’m seeing articles saying the first year is exempt from the $800.
Does that still apply?
Arthur replied a little later.
Look at the years.
Evan had.
So it ended?
Yes.
In 2024?
The exemption was temporary. It applied to tax years beginning before 2024.
Evan stared at the message.
That seems poorly timed.
Arthur replied:
For California or for you?
Evan put his phone down.
That evening, Daisy was looking at houses on her laptop.
They had been doing that more often lately.
Nothing serious, according to Evan.
Serious enough that Daisy had started saving listings.
Evan sat across from her.
“I owe California eight hundred dollars.”
She kept scrolling.
“For the LLC?”
“Yeah.”
“I thought you knew that.”
“Arthur told me. But I found articles saying the first year was exempt.”
Daisy looked up.
“And?”
“It was.”
“Was?”
“Until this year.”
She waited a second.
“That does feel personal.”
“Thank you.”
Daisy went back to the listings.
Evan opened his laptop.
The LLC itself had not received a client payment yet.
There was money in the new bank account because Evan had transferred some in to get started, but the next invoice was still outstanding.
That did not change the number.
$800.
Evan preferred costs that moved with something.
Five percent of income.
Ten percent of a purchase.
A fee tied to revenue.
Those could go into a model.
The $800 was different.
He had created a California LLC.
The tax came with it.
He opened the spreadsheet he had started the year before.
It had changed considerably since the first $4,800 payment.
There was a client tab now.
An expense tab.
A projection for 2024.
He added a new line.
California annual LLC tax
$800
Daisy glanced over.
“You put it in the spreadsheet?”
“Obviously.”
“Where?”
“Taxes and licenses.”
She nodded as if she understood.
Evan looked at her.
“You have no idea whether that’s right.”
“No.”
She turned her laptop toward him.
“But I found a house.”
Evan looked at the photo.
Single story.
Older kitchen.
A patch of grass in front.
“Where?”
“Anaheim.”
“How much?”
Daisy pointed at the screen.
Evan looked at the number.
Then at his own laptop.
The $800 suddenly seemed less interesting.
The Tax Behind the Story
California’s $800 annual LLC tax is separate from whether forming an LLC produces federal income-tax savings.
The temporary California first-year exemption applied to LLCs organizing or registering for tax years beginning on or after January 1, 2021 and before January 1, 2024. Evan forms his LLC in 2024, so that temporary exemption is no longer available.
California generally imposes the $800 annual tax on an LLC that is organized or doing business in the state, including a single-member LLC that may be disregarded for federal income-tax purposes.
For Evan, the important distinction is simple: forming the LLC and deciding how the business is taxed are related decisions, but they are not the same decision.
Want the tax rules behind the story?
California LLC: The $800 Annual Tax and Form 568
A deeper look at the annual LLC tax, first-year rules, Form 3522, Form 568, payment timing, the separate LLC fee, and what happens when an LLC is eventually closed.
Next Episode
The House
Evan and Daisy have been talking about buying a home for months.
The Anaheim listing isn’t perfect.
Daisy wants to see it anyway.