Form 568 (2019): Limited Liability Company Return of Income

What Form 568 (2019) Is For

Form 568 (2019) is the Limited Liability Company Return of Income used by limited liability companies (LLCs) doing business in California to report income, deductions, and fees to the California Franchise Tax Board. It applies to pass-through entities such as multi-member LLCs classified as partnerships and single-member LLCs treated as disregarded entities. This form calculates the required annual $800 franchise tax and any additional LLC fee based on California-source gross receipts. 

When You’d Use Form 568 (2019)

You would use Form 568 (2019) in several situations that involve filing requirements for California LLCs.

• Filing as a multi-member LLC: You must file Form 568 if your California LLC is classified as a partnership with more than one member and operates during the taxable year.
  
  
• Filing as a single-member LLC that is a disregarded entity: Even if the LLC is disregarded for federal tax purposes, California requires Form 568 for payment of the annual franchise tax and reporting obligations.
  
  
• Filing after registering with the California Secretary of State: Once a business registers or organizes as an LLC in California, it must file Form 568 annually until officially canceled.
  
  
• Filing when the California LLC has business activity within the taxable year: LLCs that generate business income or operate within California must file regardless of profit or loss.

Key Rules or Details for 2019 Form 568 (2019)

Several vital rules apply when completing Form 568 (2019) for the 2019 tax year.

• Annual franchise tax obligations: All California LLCs are required to pay the $800 annual franchise tax by the 15th day of the fourth month after the beginning of the taxable year, regardless of income level.
  
  
• LLC fee calculations using Schedule IW: If total California-source income exceeds $250,000, LLCs must compute and report an additional fee using Schedule IW, based on gross receipts, including the cost of goods sold.
  
  
• Nonresident member consents using Form FTB 3832: LLCs with nonresident members must collect signed consent forms or pay tax on their distributive share using Schedule T to avoid penalties.
  
  
• Estimated fee requirements using Form FTB 3536: LLCs expecting to owe the LLC fee must submit an estimated payment by the 15th day of the sixth month using Form FTB 3536 to avoid a late payment penalty.

Step-by-Step (High Level)

The filing steps for Form 568 (2019) follow a structured process based on your LLC’s classification and business activity.

1. Gather federal and state records: Start by collecting your federal return (such as Form 1065 or Form 1040 with Schedule C) and all applicable state forms, including your business address, federal employer identification number, and California Corporation Number.
   
   
2. Complete Schedule IW for the LLC fee: Calculate California-source gross receipts and cost of goods sold to determine whether the LLC fee applies, using the tiers set by the Franchise Tax Board.
   
   
3. Prepare Schedule B and make necessary adjustments from the federal return: Adjust the federal amounts on Schedule B to reflect California-specific rules, particularly those that differ from the Internal Revenue Code.
   
   
4. Prepare California Schedule K and Schedule K-1: Report each member’s distributive share of income, deductions, and credits, and complete a separate Schedule K-1 for each member, including California Schedule K-1 if applicable.
   
   
5. Identify nonresident obligations for Form FTB 3832 or Schedule T: Obtain signed consents from nonresident members or calculate the LLC’s payment on their behalf using Schedule T.
   
   
6. Prepare additional schedules (Schedule R, Schedule L, Schedule E, or Schedule M-1): Complete these schedule forms if your LLC has apportionable income, book-tax differences, or specific allocation adjustments.
   
   
7. Verify franchise tax payments with Form FTB 3522: Confirm that the $800 annual franchise tax has been paid on time using Form FTB 3522 or include the payment with the return.
   
   
8. Assemble required attachments, including Form FTB 3885L or Form 593 as needed: Include depreciation schedules, withholding statements, or investment credit claims as necessary.
   
   
9. Sign the return using the correct California Corporation Number or federal Employer Identification Number. The authorized member must sign under penalty of perjury before filing.
   
   
10. Submit the completed Form 568 (2019) electronically using Business e-file: The California Franchise Tax Board requires e-filing for most business entities preparing returns using tax software.

Common Mistakes and How to Avoid Them

Several common mistakes occur when completing Form 568 (2019).

• Confusing the annual franchise tax with the LLC fee: These are separate obligations; the $800 franchise tax is required regardless of income, while the LLC fee depends on California-source gross receipts.
  
  
• Missing the estimated fee deadline: Form FTB 3536 must be submitted by the 15th day of the sixth month to avoid a late payment penalty.
  
  
• Incorrect classification of foreign entities: Foreign LLCs doing business in California must still file Form 568; verify status using the California Business Entities Search.
  
  
• Failing to track expenses on Form schedules: Use Schedule B, Schedule D, and Schedule M-1 to properly reconcile deductions and prevent incorrect reporting.
  
  
• Not filing an amended return when federal changes occur: If the Internal Revenue Service adjusts your federal return, file an amended return within six months using the “Amended” box on Form 568.
  
  
• Incorrect reporting of disposition of business property: Use Schedule D-1 and Form FTB 3885L to report gains, losses, and depreciation properly.

What Happens After You File

Once Form 568 (2019) is submitted, the California Franchise Tax Board typically processes e-filed returns within 3 to 4 weeks and paper returns within 6 to 8 weeks. If you are due a refund for an overpaid LLC fee or non-consenting non-resident tax, it is typically issued during this timeframe. Members will receive Schedule K-1 (Form 568) to report their share of income on their Form 540, Form 540NR, or business returns, such as Form 100. If any tax liabilities, missing documents, or discrepancies are identified, the Franchise Tax Board may issue a Notice of Balance Due or other compliance letters. 

FAQs

Who must file Form 568 (2019) for a California LLC?

Any California LLC must file Form 568 (2019) if it is a business entity organized, registered, or conducting business activity in the state during the taxable year.

Does Form 568 apply to single-member LLCs that file Schedule C with Form 1040?

A single-member LLC must file Form 568 even if its income is reported on Schedule C of Form 1040 because California treats the entity separately for franchise tax and LLC fee purposes.

Do nonresident members need to file Form 540NR after receiving a Schedule K-1?

A nonresident member must file Form 540NR if the Schedule K-1 from the California LLC reflects taxable income sourced to California.

Does filing or changing an entity classification election affect Form 568 filing requirements?

Any LLC that files or changes an Entity Classification Election must still submit Form 568 because California requires consistent reporting regardless of federal classification under the Internal Revenue Code.

What records should business owners maintain for future taxable years?

Business owners should retain all relevant documents, including the biennial report, principal business activity codes, business license reports, employer identification number records, and California business license filings, to support future tax filing requirements.