Form 568 (2020): Limited Liability Company Return of Income

What Form 568 (2020) Is For

Form 568 (2020) is the California Form 568 Limited Liability Company Return of Income that limited liability companies submit to the Franchise Tax Board to report income, deductions, and credits for the taxable year. The form applies to California LLCs treated as disregarded entities or pass-through entity partnerships, providing the state with the financial information required under California law. 

It enables business owners to fulfill reporting requirements for business entities operating or registered in California, ensuring that all activities for the tax year are adequately documented.

When You’d Use Form 568 (2020)

You would use Form 568 (2020) when your business must satisfy California LLC filing requirements for the taxable year.

1. Registered businesses with the California Secretary of State: This applies when the LLC is organized, registered, or active under California law, regardless of whether the LLC generates any business income during the year.
   
   
2. Single-member LLC classification: This applies when disregarded entities are required to file Form 568 even though business income flows through Schedule C or Form 540.
   
   
3. Multi-member LLCs: This applies when the entity is treated as a partnership and must provide each member with a Schedule K-1 that reports that member’s share of income or loss.
   
   
4. LLCs doing business in California: This applies when business activities or California-source income create a filing obligation, even if the formation occurred in another state.
   
   
5. Amended return situations: This applies when owners must correct errors, report Internal Revenue adjustments, or update member details for the taxable year.

Key Rules or Details for Tax Year 2020

These rules outline required payments, classifications, and reporting details for California LLCs filing Form 568 (2020).

1. Annual California Franchise Tax requirement: This establishes the obligation to pay the franchise tax through Form FTB 3522 or Form 3522, even when the LLC has no business income.
   
   
2. LLC fee based on total business income: This applies when California LLCs owe an additional cost based on gross receipts as reported on Form 568 for the taxable year.
   
   
3. Classification elections: This covers situations where LLCs elect C corporation or S corporation tax treatment using Form 8832 or meet the federal requirements for S corporation status.
   
   
4. Member-level reporting rules: This explains how California Schedule K and California Schedule K-1 distribute taxable incomes and tax credits among all members.
   
   
5. Disregarded entity rules for a single-member LLC: This explains why the entity must still file California Form 568 even though income appears on federal and state individual tax returns.
   
   
6. Required schedules for specific items: This lists situations that require additional schedules, such as Schedule IW, Schedule T, Schedule R, Schedule CA, or the Use Tax Worksheet when certain income types or transactions apply.

Step-by-Step (High Level)

These steps outline how business owners can complete Form 568 (2020) accurately and meet all reporting requirements for the taxable year.

1. Gather business records: This involves collecting income reports, expense documentation, bank statements, and the federal Employer Identification Number (EIN) to ensure the accuracy of reported financial activity.
   
   
2. Complete federal filings first: This ensures that business income reported on federal forms, such as Form 1065 or Schedule C, aligns with state reporting obligations.
   
   
3. Fill out entity information: This requires entering details such as the California Secretary of State file number, business address, business bank account information, and business formation data.
   
   
4. Compute the $800 tax and LLC fee: This requires using gross receipts and applicable franchise tax liabilities to determine whether a California LLC owes the annual tax, the LLC fee, or both.
   
   
5. Prepare member schedules: This involves issuing Schedule K-1 and verifying ownership percentages in accordance with the Internal Revenue Code before distributing tax information to members.
   
   
6. Calculate payments: This requires reviewing all payments made with Form FTB 3536, Form 3536, or Form FTB 3537 and confirming that extension payments match the amounts reported.
   
   
7. Sign and file: This requires submitting the form electronically through Business e-file or mailing the return and necessary schedules to P.O. Box 942857, Sacramento, CA.

Common Mistakes and How to Avoid Them

These common mistakes often result in processing delays or notices from the Franchise Tax Board.

1. Incorrect reconciliation of member schedules: This causes mismatched totals between Schedule K and Schedule K-1 and can be avoided by verifying every total before submitting the return.
   
   
2. Misstating the LLC fee calculation occurs when owners subtract expenses from gross receipts and can be avoided by following the instructions in the California Revenue and Taxation Code for reporting total income.
   
   
3. $800 late tax penalty: This penalty is issued under Franchise Tax Board rules and can be avoided by submitting Form FTB 3522 payments by the original due date.
   
   
4. Submitting incomplete schedules: This occurs when Schedule IW, Schedule CA, Schedule R, or other required attachments are missing and can be avoided by confirming all schedules listed in the 'Reporting Requirements' section of Form 568.
   
   
5. Using the wrong entity classification: This occurs when an LLC taxed as a corporation incorrectly files Form 568 instead of Form 100 or Form 100S. This issue can be avoided by confirming federal classification elections before filing the return.

What Happens After You File

After submitting Form 568 (2020), the Franchise Tax Board reviews the return to confirm that all California tax forms, schedules, fees, and franchise tax payments are accurately reported for the 2020 tax year. The department may issue notices requesting clarification or additional documentation when business entities provide incomplete information. 

If an amended return is required, the Franchise Tax Board updates the account and adjusts tax liabilities accordingly. Business owners may receive refunds, additional bills, or correspondence delivered through standard processing at our Sacramento, CA, location.

FAQs

Do disregarded entities still need to file Form 568 (2020 for tax year 2020)?

Yes, disregarded entities must file Form 568 (2020) because California law requires every registered LLC to submit the Limited Liability Company Return of Income even when activity is reported on Schedule C or individual forms.

How does the annual franchise tax through Form FTB 3522 apply to a single-member LLC?

The annual franchise tax applies to a single-member LLC because California imposes a mandatory payment using Form FTB 3522 regardless of whether the entity has business income for the taxable year.

Which schedules might a business entity need to attach when filing California Form 568?

A business entity may need schedules such as Form FTB 3814, Form FTB 3531, Form FTB 3541, Form FTB 3503, Schedule CA, or other California tax forms, depending on the types of income reported.

When should a business owner file an amended return for Form 568?

A business owner should file an amended return when Internal Revenue adjustments, ownership corrections, or updated business license or business formation details require revised reporting to the Franchise Tax Board.

Does choosing S corporation or C corporation status change the filing requirements for Form 568?

Choosing S corporation or C corporation status alters the filing requirements, as the entity must file Form 100S or the California Corporation Franchise Tax Return, rather than submitting Form 568.

‍