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Tax Due Dates Verses Filing Due Dates

For California, when a business entity is required to file tax returns and pay taxes depends on the type of business entity, whether or not a “Check-the-Box” election was made,[8] or if the business entity has a fractional or “short period” return.[9]

Check-the-Box

The check-the-box regulation allows tax classification as either a partnership or a corporation to be explicitly elective. In addition, the check-the-box regulation explicitly provides that a single-member unincorporated entity may be treated as a corporation or may be disregarded (treated as not separate from its owners).[10] A disregarded entity is treated in the same manner as a sole proprietorship, in the case of an entity owned by an individual or in the same manner as a branch or division, in the case of an entity owned by a corporation. An incorporated entity is always classified as a corporation. Most other business entities are considered ‘eligible entities’ that have default classification based on the number of owners (one owner- disregard/more than one owner – partnership) and can elect to be classified as an association taxable as a corporation or S corporation. An eligible business entity that has made an election for federal income tax purposes, must file based on that election for California purposes.

Limited liability companies (LLCs) are legal business entities formed under state law. In California, an LLC that uses its default classification (disregard/partnership) is required to pay an annual tax of $800, and may be required to pay a fee. The annual tax is due on the 15th day of the 4th month of the taxable year. This will generally be on April 15.[11] LLCs required to pay the LLC Fee must pay by the 15th day of the 4th month after the end of its taxable year. In addition, an LLCs must estimate its fee and pay its estimate of the fee no later than the 15th day of the 6th month of its tax year.[12] This means an LLC will need to pay its annual tax for 2014 and any applicable fee due for 2013 by April 15, 2014. An LLC that elects to be classified as an association taxable as a corporation or S corporation will file and pay taxes based on that election.

LLCs use IRS Form 8832, Entity Classification Election, to change their entity classification. The federal election automatically applies for state tax purposes. A copy of the Form 8832 should be attached to the California tax return for the year the election is effective. To become an LLC taxed as an S-corporation, the eligible LLC should instead file IRS Form 2553, Election by a Small Business Corporation, to elect to be treated as an S corporation. The LLC must meet certain tests to be eligible to be treated as an S corporation.

Note: There may be tax consequences as a result of changing to a different form (flow-through to corporation). Taxpayers may wish to seek further advice from a tax expert before making an election.

California also requires any limited partnerships[13] that are doing business in California or that filed a certificate of limited partnership or qualified to do business with the Secretary of State to pay an annual tax of $800. The annual tax imposed on limited partnerships is due on the date the tax return is due (the 15th day after the fourth month following the close of the taxable year) before extension.

Tax returns for corporations (or eligible business entities that elect to be taxed as a corporations) are due on the 15th day of the third month following the close of the taxable year. Corporations filing on a calendar year basis have a due date of March 15.

California's Paperless Extension is for Filing not Paying

Generally[14] , California grants all income and franchise taxpayers an automatic extension of time to file a tax return. Taxpayers do not need to request the automatic extension. As long as the taxpayer files their tax return within the extension period, taxpayers are allowed either a six-month (personal income tax, partnership, and estate taxpayers) or seven-month (corporations) extension. To allow for uniformity of the extended due date, corporations have a seven month extension.[15] If the tax return is filed after the extension date (after October 15) the taxpayer will have no valid extension and the taxpayer would be subject to a late filing penalty[16] (Cal. Code of Regulations Section 18567(a)).

Late Payment Penalty

We assess a late payment penalty if the tax owned is not paid by the due date. This penalty can be waived if the taxpayer can show their failure to pay was due to reasonable cause. The fact that it may have been difficult to estimate the proper amount of tax due is not sufficient to prove reasonable cause. Taxpayers must be able to prove that despite the exercise of ordinary business care and prudence, they were unable to pay the correct amount of tax on the due date for payment.

In addition to the late filing penalty based on tax, pass-through business entities (such as partnerships, LLCs [with two or more members], and S corporations) are also subject to a late filing penalty based on the total number of partners, members, or shareholders.

Similar to the federal law (IRC Sections 6698 and 6699), California law (R&TC Section 19172 and 19172.5) imposes a penalty for the late filing of pass-through business entities returns (565, 568 and 100S) or if the returns are filed without required information. These penalties are imposed even if all taxes have been paid or, as is the case with a general partnership, no taxes are imposed.

For more information on penalties we may assess, see FTB 1024, Penalty Reference Chart.

Interest

Even if your client can show reasonable cause for either the late filing or late payment of tax, interest is charged. Interest is not a penalty. Since 1982, California law requires interest to be compounded daily. Interest is charged from original due date for underpayment of tax or fee because the liability for tax arises on the original due date for payment and ends on the effective date of payment.

To find both current and past adjusted interest rates, go to ftb.ca.gov and search for interest rates.

Web Pay for Businesses

Your client can use Web Pay for Businesses to make payments online. Use Web Pay for Businesses to make corporation, partnership, and LLC payments online. After a one-time registration process, businesses can make payments 24 hours a day, 7 days a week. Businesses can pay today or schedule a payment up to one year in advance.

Go to ftb.ca.gov and search for web pay.

[8] Other provisions of the law provide or allow for treatment as a corporation, for examples see IRC Section 7704 and R&TC Section 23038.5 related to certain publicly traded partnership treated as corporations.

[9] For conditions for filing short period returns see R&TC Section 24634.

[10] For more information, see Treas. Reg. Sections 301.7701-3(a) and (b)(1)(i) and (ii).

[11] A newly formed LLC generally will have a different due date based on the month when the entity was formed.

[12] Failure to pay the LLC estimate of the LLC Fee may be subject to the LLC to and LLC Estimate Penalty pursuant to R&TC Section 17942(d). However, the due date for payment of the LLC Fee for purposes of the underpayment, late payment, or demand penalties is the 15th day of the fourth month after the close of the taxable year.

[13] “Limited partnership” means any partnership formed by two or more persons and having one or more general partners and one or more limited partners.

[14] If a corporation or limited liability company is either suspended or forfeited, it is not allowed an extension.

[15] In some cases additional time may be allowed, for example taxpayers residing or traveling abroad and members of the armed forces or merchant marines, beyond the boundaries of the US.

[16] This penalty can be waived if the taxpayer can show their failure to timely file their return was due to reasonable cause.

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