What California Form 568 Is For
California Form 568 (2014) is the return that LLCs use to report income, deductions, credits, and other financial information to the Franchise Tax Board (FTB). For most LLCs taxed as partnerships or disregarded entities, the return exists mainly to calculate and pay two obligations: the mandatory $800 annual tax and the LLC fee, which applies when California-source income reaches $250,000 or more.
While LLCs are generally pass-through entities for income tax purposes, California still requires them to file Form 568 each year if they are organized, registered, doing business in the state, or have California-source income. The form summarizes the year’s activity, reports withholding on nonresident members, and produces Schedule K-1 (568) for all members. Even if your LLC has no income or operations, you must file Form 568 until the entity is formally dissolved.
When You’d Use California Form 568
LLCs classified as partnerships file Form 568 by the 15th day of the third month after year-end—April 15 for calendar-year LLCs. Single-member LLCs (SMLLCs) follow their owner’s due date, usually April 15 for individual owners. California provides an automatic extension to file (seven months for partnerships, six for most SMLLCs), but this does not extend time to pay the annual tax or LLC fee. Those amounts remain due on the original deadlines.
If you file late, the FTB imposes penalties of $18 per member per month for up to 12 months, plus percentage-based penalties for unpaid amounts. If you discover errors or the IRS changes your federal return, you must file an amended Form 568. Check the amended-return box, attach a written explanation, and issue amended Schedules K-1 to affected members. California requires amended filings within six months of final federal determinations.
Key Rules or Details for 2014
Who Must File
An LLC must file Form 568 if it is organized in California, registered with the California Secretary of State, doing business in the state, or has California-source income. “Doing business” includes active engagement in California transactions or crossing certain property, payroll, or sales thresholds. LLCs that elect corporate tax treatment file Form 100 or 100S instead, while specific out-of-state LLCs with only California-source income file Form 565.
The $800 Annual LLC Tax
Every LLC doing business in or registered with California must pay the $800 annual tax, regardless of income or business activity. For 2014, the tax was due by the 15th day of the fourth month of the taxable year. Use Form FTB 3522 to pay; do not include this payment with Form 568. For 2014, new LLCs did not receive a first-year exemption—they owed the tax in their initial year.
The LLC Fee Based on California Income
The LLC fee applies when total California-source income is at least $250,000. For 2014, the fee ranged from $900 to $11,790 depending on the income tier. California-source income for this purpose is based on gross receipts (minus cost of goods sold), not net profit. An LLC may show a loss but still owe a substantial fee. Estimated fee payments are due by the 15th day of the sixth month using Form FTB 3536.
Member Schedule K-1 Requirements
LLCs must prepare Schedule K-1 (568) for each member, detailing their distributive share of income, deductions, and credits. Copies must be filed with Form 568 and provided to members. Missing, incomplete, or incorrect K-1s trigger the same $18-per-member-per-month penalty as late filings.
Step-by-Step (High Level)
Step 1: Gather Financial Information
Collect your LLC’s financial records, including profit and loss statements, balance sheets, federal Form 1065 (if applicable), and documentation of member contributions or distributions.
Step 2: Complete the Return Header
Enter your LLC’s legal name, FEIN, Secretary of State file number, address, and accounting period. Identify whether the return is original, amended, or final. Confirm your federal classification and indicate first-year status if applicable.
Step 3: Report Income and Deductions
Use Schedule IW to compute California-source income. Complete Form 568’s income and deduction sections using federal amounts adjusted for California-specific rules. California does not conform to all federal provisions, so review adjustments carefully.
Step 4: Calculate the LLC Fee
Determine your fee bracket based on Schedule IW results. Enter the calculated fee, subtract any estimated fee payments made via Form FTB 3536, and compute the remaining amount due or refundable.
Step 5: Complete Schedule K and Prepare Schedules K-1
Schedule K summarizes the LLC’s distributive items. Prepare a separate Schedule K-1 for each member, showing their percentage interest and allocated items. Ensure member percentages are in four-decimal format and that totals reconcile with Schedule K.
Step 6: Pay Required Taxes
Pay the $800 annual tax on Form FTB 3522. Pay any remaining LLC fee with Form 568 or via additional Form FTB 3536 payments if made after filing.
Step 7: File the Return and Distribute K-1s
File Form 568 with all attachments by the due date or extended deadline. Provide each member with their Schedule K-1 so they can report their share on their individual income tax return.
Common Mistakes and How to Avoid Them
- Using the wrong form — LLCs commonly confuse Form 568 and Form 565. Verify your tax classification before filing.
- Mixing up the annual tax and the LLC fee — These are separate obligations with different due dates and payment forms.
- Missing the estimated fee deadline — Pay by the sixth month to avoid the 10% underpayment penalty.
- Failing to prepare all K-1s — Incomplete or missing Schedules K-1 result in substantial penalties.
- Assuming extensions apply to payments — Extensions apply only to filing, not to the annual tax or fee.
- Ignoring California-specific adjustments — Review federal-California differences to avoid reporting errors.
What Happens After You File
The FTB processes Form 568 and applies payments to the LLC’s account. If you overpaid estimated fees, you may request a refund or apply the credit to the next year. If amounts remain due, the FTB issues a billing notice.
Members use their K-1s to complete their own California returns—residents report all LLC income, while nonresidents report only California-source items. The FTB may select the return for audit if items appear unusual, inconsistent with member filings, or related to a federal audit.
LLCs must retain records for at least four years, including financial statements, member allocations, and filed returns. Members should keep K-1s indefinitely to support basis calculations. Failure to file or pay may result in suspension or forfeiture, causing the LLC to lose its legal rights and privileges until all obligations are resolved.
FAQs
Do I owe the $800 tax even if my LLC had no income?
Yes. The annual tax applies as long as the LLC is organized, registered, or doing business in California. The only way to avoid it is to dissolve the LLC before the tax year begins.
How do I know whether to file Form 568 or Form 565?
LLCs file Form 568 unless they elected corporate tax treatment or are nonregistered foreign LLCs with only California-source income. Those entities file Form 565 instead.
Is the LLC fee based on profit?
No. It is based on California-source income as calculated on Schedule IW, which reflects gross receipts minus cost of goods sold, not net profit.
Can the annual tax or LLC fee be deducted?
No. California law prohibits deducting these payments as business expenses by either the LLC or its members.
What happens if I file late?
Late filings trigger penalties of $18 per member per month (up to 12 months), plus percentage-based penalties on unpaid tax or fee. Persistent noncompliance can lead to suspension.
Do I attach Schedule K-1 (568) to my personal return?
No. Keep the K-1 for your records. Your LLC files copies with the FTB, and you use the K-1 information to complete your own return.
Do SMLLCs still need to file Form 568?
Yes. Even disregarded SMLLCs must file Form 568 to report and pay the annual tax and any LLC fee owed.
