What Form 568 (2016) Is For
Form 568 (2016) is the required Limited Liability Company Return of Income used by limited liability companies that operate or are registered in California but are not taxed as corporations. These companies, often classified as pass-through entities or disregarded entities, do not pay state income tax directly. Instead, the income, deductions, and tax credit allocations pass through to individual members, who report them on their personal or corporate tax returns. The form also includes Schedule K and individual Schedule K-1s for members, ensuring proper state-level compliance with California Franchise Tax requirements during the taxable year.
When You’d Use Form 568 (2016)
This section outlines the situations in which Form 568 (2016) applies to business owners filing state tax returns for an LLC.
- LLCs required to file due to California activity: The return is required when an LLC conducts business in California, has a California business address, or engages in business activity.
- LLCs classified as disregarded entities: A single-member LLC must file through the owner’s federal return; however, Form 568 is required at the state level to report California income.
- LLCs with members needing Schedule K-1 reporting: The form is used when members must receive a California Schedule K-1 that matches the federal employer identification number used on the federal return.
- LLCs that owe the annual tax or LLC fee: The form documents estimated payments made using Form 3522 or Form 3536, and is required even if there is no net income.
- LLCs filing a final return or amended return: Businesses that wind down using Form LLC-4 or Form LLC-4/7 must file a final Form 568; amended returns are filed to correct prior-year reporting.
Key Rules or Details for 2016
Several filing requirements apply specifically to Form 568 (2016) and must be followed during the taxable year.
- Filing requirements for LLCs: LLCs organized, registered, or operating in California must submit Form 568 unless they elect to be taxed as a C corporation or S corporation.
- Annual $800 tax rule: California law requires each LLC to pay an annual minimum franchise tax of $800, using Form 3522, which must be submitted separately from the return.
- LLC fee based on total California income: The LLC fee is triggered when qualified net income exceeds specific thresholds and must be estimated and paid using Form FTB 3536.
- Nonresident withholding requirements: LLCs with nonresident members or foreign entities must use Form FTB 3832 or Form 593 to comply with California withholding rules.
- California conformity rules: Differences between the Internal Revenue Code and the California Revenue and Taxation Code affect depreciation, deductions, and credits reported on Schedule IW, Schedule M-1, Schedule L, and Schedule B.
- Suspension and forfeiture rules: Failure to meet tax filing requirements or to resolve a late payment penalty may result in loss of rights, powers, and privileges under California law.
Step-by-Step (High Level)
The steps below outline the general filing flow for Form 568 (2016) for limited liability companies during the taxable year.
- Confirm your LLC’s filing status: Determine if your business formation or registration with the Secretary of State requires filing Form 568 based on your California Business License, Statement of Information, or principal business activity.
- Pay the annual tax: Submit the required eight-hundred-dollar payment using Form 3522, and use Form FTB 3537 if making an extension payment separate from the yearly tax.
- Estimate and pay the LLC fee: Use Form 3536 or Form FTB 3536 to submit the estimated LLC fee if total California income meets or exceeds the filing threshold.
- Gather financial documents: Collect all necessary income statements, sales tax returns, credit calculations, and federal forms such as Form 1040, Form 1120S, or Form 540NR, as well as California-specific documents like Schedule C and Schedule E.
- Complete Form 568: Accurately complete all parts of the form, including Schedule IW, Schedule K, Schedule K-1, Schedule R, Schedule M-3, and any applicable attachments from the California Corporation Franchise or Income Tax Return.
- Submit electronically or by mail: File using the California Business e-file system or other online submission options, and ensure the responsible party signs the form before submission.
Common Mistakes and How to Avoid Them
Several frequent issues arise when taxpayers complete Form 568 (2016); the list below explains how to avoid them.
- Missing or incomplete Schedule K-1: Ensure each member receives a complete California Schedule K-1 with accurate figures and a valid tax identification number that matches the business records.
- Incorrect member percentages: Use ownership percentages in four-decimal format and confirm consistency with documents such as Form LLC-1 or your operating agreement.
- Incorrect payment timing: Submit Form 3522 for the annual tax and Form 3536 for the LLC fee by the required deadlines to avoid late payment penalty assessments.
- Failure to report federal changes: If the Internal Revenue Service adjusts your federal return, file an amended return using Form 568 and include all required supporting forms, such as Form 8832.
- Using unapproved forms: File only approved schedules such as Schedule T, Schedule P, Schedule D, or Schedule D-1 that comply with California Franchise Tax Board standards.
What Happens After You File
After submitting Form 568 (2016), the California Franchise Tax Board reviews your return to verify its completeness and accuracy. The agency may cross-check your data against the California Business Entities Search, business website, and federal return details. If discrepancies, missing forms, or unreported federal changes are found, you may receive a notice. The board may also compare credit claims, such as the California Earned Income Tax Credit, using attached forms, including Form FTB 3885L, Form FTB 3804, Form FTB 3834, Form FTB 3531, or Form FTB 3893.
FAQs
What information do business owners need before filing Form 568 (2016)?
Business owners must collect their federal tax return, business bank account details, business license report, and documentation, such as Schedule B Income and Deductions and the Schedule IW Income Worksheet.
Can a single-member LLC use Form 568 even if it files Schedule C on the federal return?
Yes, a single-member LLC that files Schedule C with Form 1040 still must file Form 568 for state reporting purposes, unless it elects corporate tax treatment through the Entity Classification Election.
How does Form 568 relate to other filings like the California S Corporation Franchise or Income Tax Return?
Form 568 is distinct from the California S Corporation Franchise or Income Tax Return and applies only to LLCs that have not elected to be treated as corporations under Form 8832.
What should be submitted if an LLC is filing a final return and ceasing operations?
The business must file a final Form 568, along with Form LLC-4/7 or Form LLC-3, and update any relevant filings, such as the Business Registration Certificate.
Can a Private Service Company claim the California Earned Income Tax Credit on Form 568?
No, the California Earned Income Tax Credit is generally not applicable to LLCs or Private Service Companies filing Form 568; it applies to qualified individuals on Form 540 or Form 540 2EZ.
