What Form 568 (2014) Is For
Form 568 (2014) is the Limited Liability Company Return of Income used by limited liability companies (LLCs) in California to report annual income, deductions, credits, and member distributions to the California Franchise Tax Board. It applies to LLCs classified as pass-through entities and disregarded entities and is required even when no income is earned. The form also calculates required payments, including the $800 annual tax and the LLC fee, and ensures compliance with California law and Franchise Tax Board reporting requirements.
When You’d Use Form 568 (2014)
You would use Form 568 (2014) under the following situations:
- Regular filing for limited liability companies: This applies when an LLC is organized, registered, or conducting business in California and must submit the Limited Liability Company Return of Income for the appropriate taxable year.
- Filing as a disregarded entity: This applies when a single-member LLC that is disregarded for federal tax purposes still must file Form 568 (2014) with the California Franchise Tax Board.
- Foreign entities with California-source income: This applies when foreign entities not registered in California receive California-source income and may be subject to Form 568 or partnership return requirements.
- Late or amended return requirements: This applies when an LLC needs to correct previously reported information by submitting an amended return in accordance with Internal Revenue and California FTB rules.
- Final return situations: This applies when an LLC has ceased operations and files a final return after submitting Form LLC-4 or Form LLC-4/7 to dissolve or cancel its registration.
Key Rules or Details for 2014 Form 568 (2014)
Understanding the filing rules and requirements for Form 568 (2014) helps LLCs avoid costly penalties:
- Filing requirements for limited liability companies: All LLCs organized, registered, or doing business in California must file Form 568 regardless of income or business activity for the tax year.
- Annual tax and fee obligations: All qualifying LLCs must pay the $800 yearly tax using Form 3522 and may also owe an LLC fee based on California-source income, as reported on Form FTB 3536.
- Classification rules and elections: LLCs must follow the classification elected under federal Form 8832 and determine whether they are treated as pass-through entities, C corporations, or S corporations for state filing purposes.
- Member reporting obligations: Each member must receive a Schedule K-1 (Form 568) or a California Schedule K-1, detailing their share of income, deductions, and credits to be reported on Form 540 or Form 540NR.
- Penalty rules for noncompliance: LLCs are subject to late filing penalties, late payment penalties, and possible interest charges unless they qualify for penalty abatement or provide documentation of reasonable cause.
Step-by-Step (High Level)
The following overview outlines the significant steps to complete correctly and file Form 568 (2014):
- Gather federal and state documents: LLCs must collect prior-year tax returns, federal Form 1040 or Form 1120S, and all relevant schedules such as Schedule E, Schedule M-1, Schedule L, or Schedule D, along with financial records for the taxable year.
- Complete identification and business information: The LLC must accurately enter its federal employer identification number, California Secretary of State file number, tax identification number, and principal business activity on Form 568.
- Report income, deductions, and adjustments: Use Schedule IW to determine California-source income and apply necessary state-specific adjustments that differ from the federal return, including depreciation or business expense limitations.
- Prepare member schedules: Each member must receive a properly completed Schedule K-1 (Form 568) or California Schedule K-1, which outlines the allocations of income, deductions, and other tax attributes reported on Form 540 or Form 540NR.
- Submit payments and file return: Pay the $800 annual tax separately using Form 3522, and submit any LLC fee using Form FTB 3536; file Form 568 through Business e-file or mail, ensuring all supporting documents are attached.
Common Mistakes and How to Avoid Them
LLCs often make avoidable mistakes when filing Form 568 (2014); the following highlights the most frequent errors and how to prevent them:
- Filing the incorrect return type: This mistake occurs when LLCs file Form 565 or corporate forms instead of Form 568; to avoid it, confirm your entity classification and filing status with both the Internal Revenue Service and the California Secretary of State.
- Missing schedules or attachments: Many returns are incomplete due to the omission of schedules such as Schedule B, Schedule IW, Schedule T, or Form FTB 3885L. Review the filing instructions and include all required documentation with the return.
- Incorrect classification or identification numbers: Using the wrong federal employer identification number or failing to update a tax identification number leads to mismatches; verify all identification entries before submitting Form 568.
- Failure to pay required taxes or fees: Some LLCs neglect to pay the $800 annual tax or estimated LLC fee. Use Form 3522 and Form FTB 3536 to ensure timely payments and avoid late payment penalties or interest charges.
- Ignoring penalty relief options: Many business owners overlook the availability of penalty abatement. If late, consider applying for penalty relief through the One-Time Penalty Abatement program or providing reasonable cause documentation.
What Happens After You File
Once Form 568 (2014) is filed, the California Franchise Tax Board processes the return and applies any payments to the LLC’s account. If additional tax liability exists, the FTB sends a billing notice. Overpayments may result in a refund or credit toward the following year. Individual taxpayers use their Schedule K-1 to complete Form 540 or Form 540NR.
The LLC must retain all filed documents and schedules for a minimum of four years in case of an audit. Failure to file or underpayment can result in suspension, penalties, or additional compliance actions.
FAQs
Do disregarded entities need to file Form 568 (2014)?
Yes, single-member LLCs classified as disregarded entities must still file Form 568 (2014) to comply with California Limited Liability Company Return of Income rules.
What schedules must be included with Form 568 (2014)?
Required schedules may include Schedule IW, Schedule B, Schedule M-1, Schedule L, Schedule P, and Schedule D, depending on the LLC’s income activity and classification.
Can Form 568 (2014) be filed after dissolution?
Yes, a final return must be filed using Form 568 (2014) after the LLC is adequately dissolved with Form LLC-4 or Form LLC-4/7 and all final tax obligations have been met.
Are LLCs eligible for penalty relief or abatement?
Yes, LLCs may request penalty relief through programs such as the One-Time Penalty Abatement or by providing evidence of reasonable cause under the California Revenue and Taxation Code.
What form should nonresidents use to report income from California LLCs?
Nonresident members of an LLC should use Form 540NR (California Nonresident or Part-Year Resident Income Tax Return) to report their share of California-source income.
