California’s 15 Day Rule for Corporations and LLCs
Start your own corporation in California before December 17th and avoid potential filing backlogs right after the New Year.
Have you decided to found a corporation or an LLC in California? Do not leave it for another year. The 15-day rule only applies to short tax years that are 15 days or less. The 15-day rule states that inactive business entities (Limited Partnerships, Limited Liability Partnerships, Limited Liability Companies and Corporations) with a tax year of 15 days or less are not required to file a tax return or pay the $800 annual/minimum tax, if they meet both of the following:
– They have not conducted a business in California during the tax year
– Their tax year is 15 days or less
“According to California Franchise Tax Board Publication 1060, California’s 15-day rule allows you to incorporate or form an LLC during the last 15 days of the year and avoid filing tax returns for 2020.”
California Corporation $800 Minimum Tax
The tax filing calendar for the company that formed on December 17th or after and does no business for the end of the 2020, then it may not have to file a tax return and pay the $800 annual/minimum tax for that short year.
Since an entity that meets the 15-day rule is not required to file a tax return, this time period is not considered the first tax year. 2020 tax year will be considered the first tax year and the entity will have the chance not to pay the franchise tax until the fifteenth day of the third month after the end of the tax year.
For example, if a corporation filing on a calendar year basis incorporates on December 20, 2020 and does not conduct business from December 20, 2020 to December 31, 2020, then it meets the 15-day rule and does not need to file a 2020 tax return. The corporation’s first tax year will start on January 1, 2021. The $800 minimum tax would not be due until 2022.
The subject of California’s 15-day rule are the limited liability companies (LLCs). According to FTB 3556, the $800 tax is waived if no business is conducted during the 15 days and the LLC is filed between December 17 and 31: