Form 568 (2018): Limited Liability Company Return of Income

What Form 568 (2018) Is For

Form 568 (2018), officially titled the Limited Liability Company Return of Income, is used by limited liability companies (LLCs) to report their income, deductions, and financial activities to the California Franchise Tax Board. The form is mandatory for LLCs operating in California and applies to both multi-member entities taxed as partnerships and single-member LLCs treated as disregarded entities for federal purposes. Although the LLC itself is a pass-through entity, Form 568 still imposes a separate filing obligation, including the $800 annual tax and a fee based on gross income for LLCs. 

When You’d Use Form 568 (2018)

You would use Form 568 (2018) under the following conditions that trigger filing requirements under California law:

• Regular filing requirement for California LLCs: Every LLC formed in, registered with, or doing business in California must file Form 568 for each taxable year in which it operates or maintains registration.
  
  
• Filing as a partnership return for multi-member LLCs: LLCs with more than one member, unless classified as corporations, must file Form 568 and report all income on a partnership-style return format.
  
  
• Filing for disregarded entities owned by individuals or entities: Single-member LLCs treated as disregarded entities for federal purposes must still file Form 568 and report income separately in California.
  
  
• Responding to Internal Revenue Service audit changes: If the federal return is amended or adjusted by the Internal Revenue Service, a corresponding amended Form 568 must be filed within six months if California taxes are affected.

Key Rules or Details for 2018 Form 568

Several critical rules and technical standards apply to Form 568 (2018) that LLCs must follow for the 2018 taxable year:

• Annual tax payment based on California Revenue and Taxation Code: Every LLC registered or doing business in California must pay the $800 yearly tax using Form FTB 3522, regardless of income level or activity.
  
  
• Additional LLC fee based on total California income: LLCs with income over $250,000 must pay a separate LLC fee calculated using Form FTB 3536 and submit it by the 15th day of the sixth month of the taxable year.
  
  
• Nonconformity with federal Tax Cuts and Jobs Act provisions: California does not follow specific federal tax changes such as the qualified business income deduction or the revised like-kind exchange rules.
  
  
• Member income reporting through Schedule K-1: Each LLC member must receive a Schedule K-1 accurately reflecting their share of revenue, with all K-1s reconciling to the Schedule K totals.

Step-by-Step (High Level) for Completing Form 568 (2018)

Filing Form 568 (2018) involves a structured process to ensure compliance with California law:

1. Confirming filing obligations and entity classification: Determine whether your LLC is a partnership, disregarded entity, or corporation for federal purposes to verify if Form 568 is required.
   
   
2. Paying the $800 annual tax using Form FTB 3522: Submit payment by the 15th day of the fourth month after the taxable year begins; this must be done separately from Form 568.
   
   
3. Calculating total California income using Schedule IW: Complete this schedule to assess whether the LLC owes an income-based fee in addition to the annual tax.
   
   
4. Paying the estimated LLC fee with Form FTB 3536: If required, submit the estimated cost by the 15th day of the sixth month to avoid underpayment penalties.
   
   
5. Completing income and deduction sections on Form 568: Report gross income, deductions, cost of goods sold, and other applicable financial items on the appropriate lines of the form.
   
   
6. Preparing Schedule K and all individual Schedule K-1s: Ensure each member’s Schedule K-1 matches their distributive share and reconciles with Schedule K totals.
   
   
7. Handling nonresident member requirements: Obtain Form FTB 3832 from each nonresident member; if any member fails to consent, calculate the nonconsenting member's tax using Schedule T.
   
   
8. Filing all supplemental schedules and supporting forms: Attach applicable schedules, such as Schedule D and Schedule EO, and federal disclosures, like Form 8886, as needed.
   
   
9. Signing and assembling the complete return package: Have an authorized member or manager sign Form 568, then file it by mail or using an approved business e-file method.
   
   
10. Distributing copies of Schedule K-1 to members: Provide each member with their California Schedule K-1 and instructions by the original or extended due date.

Common Mistakes and How to Avoid Them

These frequent errors can lead to penalties or delays when filing Form 568 (2018):

• Filing the wrong form for foreign entities: Nonregistered foreign LLCs that do not conduct business in California but have California-source income must file Form 565 instead of Form 568.
  
  
• Omitting or misreporting Schedule K-1 details: Each LLC member must have a Schedule K-1 with accurate information that matches Schedule K; missing or inconsistent data will trigger errors.
  
  
• Paying the annual tax incorrectly with Form 568: The $800 yearly tax must be paid using Form FTB 3522 and should not be enclosed with the return to prevent misapplication of funds.
  
  
• Failing to obtain consent from nonresident members: If a nonresident member does not sign Form FTB 3832, the LLC must calculate and pay the highest applicable tax rate on that member’s share.
  
  
• Ignoring the need for amended returns after IRS changes: Any federal return changes that affect California tax liability must be reported by filing an amended Form 568 within six months.

What Happens After You File Form 568 (2018)

After submitting Form 568 (2018), the California Franchise Tax Board processes the return and applies any payments to the LLC’s account. Each member’s Schedule K-1 is used to cross-reference income reported on their individual state tax returns, such as Form 540 or Form 540NR. Discrepancies may trigger correspondence or an examination from FTB. The general statute of limitations runs four years from the return's due date. Still, this period may be extended if federal changes are not reported or if an audit is ongoing. 

FAQs

Do single-member LLCs have to file Form 568 (2018)?

Yes, a single-member LLC must file Form 568 (2018) and pay the required annual tax and fee, even if it is treated as a disregarded entity for federal purposes.

What is the difference between Form 568 and the California Corporation Franchise or Income Tax Return?

Form 568 applies to limited liability companies not taxed as corporations, while C corporations use the California Corporation Franchise or Income Tax Return (Form 100).

Does an LLC that filed Form 8832 for federal purposes still use Form 568?

Yes, unless the LLC elects corporate tax treatment and files as a corporation, it must use Form 568 in California regardless of its federal entity classification election under Form 8832.

Is Schedule R or Schedule P required when filing Form 568 (2018)?

Schedule R and Schedule P are required only if the LLC claims specific tax credits or has apportionment factors that must be calculated under California law.

Can an LLC include its tax identification number on Form 568 instead of a federal employer identification number?

No, Form 568 requires a federal employer identification number (FEIN) issued by the Internal Revenue Service; a state tax identification number is not a substitute.

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