Form 568 (2013): Limited Liability Company Return of Income

What Form 568 (2013) Is For

Form 568 (2013) is used by limited liability companies doing business in California to report annual income, deductions, and taxes to the California Franchise Tax Board. The form applies to both single-member and multi-member LLCs classified as pass-through entities and is essential for complying with California tax laws. Business owners must use this form to calculate and pay the annual California Franchise Tax, report California-source income, and distribute Schedule K-1 to members. 

Even disregarded entities with no income activity must complete this form to meet state filing requirements for the taxable year. 

When You’d Use Form 568 (2013)

This section explains the situations in which business owners must file Form 568 (2013).

1. Filing as an LLC classified as a partnership: This applies when a limited liability company is structured as a pass-through entity for federal purposes and must file a partnership return with the Franchise Tax Board.
   
   
2. Operating as a single-member LLC that is treated as a disregarded entity: This applies when the business has only one owner and is not taxed separately at the federal level, but is still required to file under California law.
   
   
3. Doing business in California during the taxable year: This applies when any business activity occurs within the state, even if the LLC is formed in another jurisdiction or has foreign entities as members.
   
   
4. Electing corporate classification through Form 8832: This applies when an LLC chooses to be taxed as an S corporation or C corporation and must file the correct state form based on its new tax classification.
   
   
5. Receiving California-source income as a foreign entity: This applies when out-of-state LLCs earn income derived from business conducted in California and are therefore subject to the state's tax return filing requirements.

Key Rules or Details for 2013

These rules outline California’s expectations for compliance with Form 568 (2013).

• Annual tax obligation: All LLCs doing business in California must pay the $800 California Franchise Tax using Form 3522, even if no income is earned during the taxable year.
  
  
• LLC fee based on California-source income: LLCs with total California-source income over $250,000 must calculate the LLC fee using Schedule IW and make an estimated payment with Form FTB 3536.
  
  
• Pass-through reporting rules: Partnership-style LLCs must distribute California Schedule K-1 to members, based on calculations made in Schedule K and California Schedule K, showing each member’s taxable income.
  
  
• Nonresident member requirements: If a nonresident member does not submit Form FTB 3832, the LLC must pay the nonconsenting nonresident tax at the highest marginal rate on that member’s share of income.
  
  
• Amended or final return considerations: An amended return must be filed when changes to the federal return affect California income, and a final return must be filed before submitting Form LLC-4/7 to dissolve the business.

Step-by-Step (High Level)

These steps outline the high-level process for completing Form 568 (2013).

1. Confirm eligibility to use Form 568: LLCs must determine whether they are classified as pass-through entities, disregarded entities, or corporations, and confirm the appropriate form based on their tax classification.
   
   
2. Gather financial and identification documents: You will need your federal Employer Identification Number, business address, principal business activity code, and all financial schedules used in the federal return.
   
   
3. Complete Schedule B and other financial schedules: Enter the LLC’s gross income, deductions, depreciation, and net income using Schedule B, along with any applicable forms such as Schedule M-3 or Form FTB 3885L.
   
   
4. Calculate the LLC fee and pay on time: Use Schedule IW to determine the LLC fee based on California-source income and submit the payment using Form FTB 3536 by the sixth month of the taxable year.
   
   
5. Prepare and issue member reporting forms: Complete California Schedule K and California Schedule K-1 for each member, showing their share of the LLC's distributable income, deductions, and tax credits.
   
   
6. File Form 568 and retain confirmation: Submit the completed tax return to the California Franchise Tax Board through Business e-file or by mail and keep copies for your business records.

Common Mistakes and How to Avoid Them

These mistakes are common when filing Form 568 (2013).

• Not filing because the LLC had no business activity: LLCs must file annually and pay the $800 franchise tax even if they earned no income; failure to do so results in penalties unless a final return and Form LLC-4/7 are correctly filed.
  
  
• Confusing Form 565 with Form 568: Business owners should confirm their entity classification using the California Business Entities Search and file Form 568 if they operate as a limited liability company.
  
  
• Missing annual tax or LLC fee deadlines: The $800 franchise tax must be paid using Form 3522 by the fourth month of the taxable year, and the LLC fee must be paid with Form FTB 3536 to avoid late filing penalties.
  
  
• Incorrectly preparing member schedules: Each Schedule K-1 must include complete and accurate information for every member, using decimal ownership percentages and reflecting adjustments from Schedule M-1.
  
  
• Failing to address nonresident member obligations: The LLC must collect signed Form FTB 3832 from all nonresident members or calculate and pay the nonconsenting member tax using Form 568.

What Happens After You File

Once Form 568 (2013) is submitted, the California Franchise Tax Board will process the return to verify the accuracy of the calculations, attachments, and required forms, such as the California Schedule K-1. If tax payments were made separately through Form 3522 or Form FTB 3536, those will be matched with the return. Members use the Schedule K-1 to complete their personal tax return (Form 540 or Form 1040) or business returns such as Form 540NR or Form 1120S. 

FAQs

Do I still need to file Form 568 if my LLC did not earn any income during the year?

Yes, under California law, limited liability companies are required to file Form 568 and pay the $800 franchise tax, even if they have no business activity or taxable income.

What is the difference between a disregarded entity and a pass-through entity when filing Form 568?

A disregarded entity refers to a single-member LLC that is treated as part of its owner for federal tax purposes. In contrast, a pass-through entity typically refers to a multi-member LLC that files a partnership return and issues Schedule K-1 forms.

Does a foreign LLC need a California business license before filing Form 568?

Yes, foreign entities conducting business activity in California must register with the California Secretary of State and may also need a California business license, depending on the locality.

Can I file Form 568 online through the California Franchise Tax Board?

Yes, the California Franchise Tax Board allows online submission of Form 568 through the Business e-file system, which is required if you use tax preparation software.

What additional forms are required when dissolving an LLC in California?

In addition to filing a final return on Form 568, you must submit Form LLC-4/7 and ensure that your biennial report, such as Form LLC-12 or Statement of Information, is up to date.

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