Form 568 (2023): Limited Liability Company Return of Income

What Form 568 (2023) Is For

Form 568 (2023) is the required California return for limited liability companies (LLCs) that are not taxed as corporations. It allows business entities to report business income, tax credits, and tax liabilities, while also computing the required $800 franchise tax and any applicable LLC fee. This Limited Liability Company Return of Income is filed with the California Franchise Tax Board by both domestic and foreign LLCs doing business in California, including single-member LLCs and multi-member LLCs classified as pass-through entities.

When You’d Use Form 568 (2023)

Form 568 (2023) is required in several business scenarios based on formation, classification, and income activity within California.

• Registered with the California Secretary of State: Any LLC that filed Form LLC-1 or is listed in the California Business Entities Search must submit Form 568 annually.
  
  
• Doing business in California: LLCs with a business address, business website, or business bank account in California, or those that meet income thresholds, are considered to be doing business under state law.
  
  
• Treated as a pass-through entity: Multi-member LLCs or those taxed as partnerships or S corporations under an Entity Classification Election using Form 8832 must file Form 568 for each tax year.
  
  
• Owned by another entity: A single-member LLC owned by a corporation, partnership, or other business entity must submit Form 568 if it operates within the state.
  
  
• Foreign entities with California source income: LLCs organized outside California must file Form 568 (2023) if they derive business income from activities involving California customers or operations within the state.

Key Rules or Details for the 2023 Tax Year

The 2023 tax year includes specific rules that all LLC filers must follow to meet California’s tax filing requirements.

• Annual franchise tax obligation: All California LLCs must pay the $800 franchise tax each year using Form FTB 3522, regardless of income or business activity.
  
  
• LLC fee on California income: If the LLC earns $250,000 or more in California-source income, it must pay an additional LLC fee calculated using Schedule IW and submitted through Form FTB 3536.
  
  
• First-year exemption eligibility: LLCs formed between January 1, 2021, and December 31, 2023, may qualify for a first-year exemption from the $800 annual tax under California LLC Formation Requirements.
  
  
• Conformity with federal law: California does not adopt the federal IRC 351 provisions for certain deductions and disallows the full federal Section 179 expense limits.
  
  
• E-file requirement: Most LLCs are required to file electronically through approved software, unless exempt; the Franchise Tax Board mandates e-filing for those using software to prepare returns.
  
  
• Withholding for nonresident members: LLCs must obtain signed consents from nonresident members or withhold and remit tax on their behalf using Schedule T and related supporting documents.
  
  
• Required reporting schedules: Depending on the LLC’s structure and activity, the return may need to include Schedule B, Schedule C, Schedule M-1, Schedule L, California Schedule K, and California Schedule K-1.

Step-by-Step (High Level)

The following steps summarize how business owners should prepare and file Form 568 (2023) for their California LLC.

1. Confirm entity status: Determine whether your LLC is classified as a disregarded entity, a pass-through entity, or a corporation by reviewing your business formation and federal classification through Form 8832.
   
   
2. Gather identification and formation documents: Collect your federal employer identification number (EIN), California corporation number, California Secretary of State file number, and any required amendment filing forms.
   
   
3. Estimate LLC fee (if applicable): Use Schedule IW to calculate total California-source business income and determine if you must submit an LLC fee using Form FTB 3536.
   
   
4. Pay franchise tax early: Submit the $800 annual franchise tax using Form FTB 3522 by the 15th day of the fourth month of the taxable year to avoid penalties and interest.
   
   
5. Prepare required schedules and forms: Based on the size and structure of your LLC, you may need to include Schedule B, Schedule M-1, Schedule L, Schedule R, and California Schedule K-1.
   
   
6. Submit the return on time: File Form 568 (2023) along with all attachments; most filers must use e-file if preparing the return with software and must mail payments to the Franchise Tax Board separately.

Common Mistakes and How to Avoid Them

Several frequent errors lead to delays, penalties, or incorrect filing of Form 568 (2023), but they can be prevented with careful attention.

• Filing late or missing payment deadlines: Submit both Form 568 and required payments by their original due dates; the Franchise Tax Board imposes penalties and daily interest for late returns.
  
  
• Sending payments with the wrong form: Always use Form FTB 3522 for the $800 franchise tax and Form FTB 3536 for the LLC fee; do not include these payments with the return itself.
  
  
• Missing member consents: When an LLC has nonresident members who do not provide signed consent, complete Schedule T and withhold tax to comply with California Corporation Code Section § 1700-1702.
  
  
• Not submitting required schedules: Depending on the entity classification and business income, additional schedules, such as Schedule M-1, California Schedule K, or Schedule R, may be required.
  
  
• Incorrect or mismatched ID numbers: Verify that the tax identification number, EIN, and California Secretary of State file number match the information on file to avoid processing delays.

What Happens After You File

After filing Form 568 (2023), the California Franchise Tax Board will process your return and apply any payments or credits. Refunds are issued if there is an overpayment, and members can use Schedule K-1 to complete their personal state tax returns (Form 540 or Form 540NR). 

The board may contact the business if additional documents are needed or if errors are found. LLCs should retain all records, including tax returns and supporting documents, for a minimum of four years. 

FAQs

Do I need to file Form 568 (2023) if my California LLC had no income?

Yes, even if the LLC had no business income or expenses on Form 568, it must still file and pay the franchise tax, unless it has been adequately canceled with the California Secretary of State.

What is the difference between Form 568 and Form 100S?

Form 568 is used by limited liability companies that are not taxed as corporations, while Form 100S is used by entities classified as S corporations under Internal Revenue Service rules.

Can I file Form 568 for a private service company with a fictitious business name?

Yes, if the company is a California LLC or foreign entity doing business in the state, it must file Form 568 (2023) regardless of whether it operates under a fictitious business name.

What is required if I change my business license or business address?

You must update your information with both the California Secretary of State and the appropriate local agency through a business license report or a biennial filing, such as Form SI-550.

Is an LLC required to file Form 568 if it only provides a security service or operates a website?

Yes, providing a security service or operating a business website in California is considered a business activity and meets the threshold for filing Form 568 under state law.

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