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I've had this side business for a few years and in January…

i've had this side business...
i've had this side business for a few years and in January of this year, i converted it to a California LLC. it regulary makes about 20-30k in revenue, about 90% profit. I have a full time job and the LLC is a passive income side business. my personal tax brackets for 2018 from my full time work are: Fed/CA: 25%/9.3% with a Fed/CA tax rates about 21%/8.84% seems like i should save a few thousand dollars if I have it taxed as a corporation (4.46% less) using IRS form 8832 election, (25%+9.3%) - (21%-8.84%) = 4.46% - is this approximately correct, am i missing anything else significant? i understand i need to pay quarterly estimated taxes if i choose to be taxed as a corporation. (i currently do this already but for my personal taxes because of this extra income) if i convert to being taxed as a corporation, - do i pay the $800 California minimum corp franchise tax in addition to the 8.84% corporate tax or is the 800 just the minimum? - do i pay the $800 CA min franchise tax this with my Q1 est taxes? or do i skip the min tax this year and just pay the quarterly payments
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Answered in 4 hours by:
3/7/2018
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 5,796
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

Because of the Tax Cuts and Jobs Act of 2017, the FEDERAL corporate tax rate is 21% effective January 1, 2018.

The California corporate tax rate is 8.84%, but there is a constitutional amendment (ACA-22) pending before the California Assembly to increase the rate to 18.84%.

https://www.ftb.ca.gov/businesses/Structures/Limited-Liability-Company.shtml?WT.mc_id=Business_Forms_LLCtoc

The franchise tax is a tax for the privilege of doing business within California and is imposed upon all banks and corporations "doing business" in California. The amount of the tax is the greater of:

  • California net income times the appropriate tax rate.
  • The $800 minimum franchise tax.

The income tax is imposed on all corporations that, while not "doing business" in California, do "derive income from sources within this state". The amount of tax is California net income times the appropriate tax rate.

https://www.nolo.com/legal-encyclopedia/california-state-business-income-tax.html

The franchise tax is in addition to the corporate income tax.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Barbara
Barbara, Enrolled Agent
Category: Tax
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