What Form 568 (2021) Is For
Form 568 (2021), officially titled the Limited Liability Company Return of Income, is used by limited liability companies (LLCs) doing business in California to report their income, claim deductions and tax credits, and calculate any applicable fees to the California Franchise Tax Board for the 2021 tax year. While most LLCs are treated as pass-through entities under California law, meaning their income flows through to members, the form is still required for filing compliance.
When You’d Use Form 568 (2021)
LLC business owners must use Form 568 (2021) in several specific scenarios that arise during the taxable year:
- Original filing requirement: LLCs that are registered or organized in California or that conduct business within the state must file Form 568 annually to comply with state tax filing requirements.
- Amended return filing: If an LLC needs to correct its previously submitted return due to updated financial information or federal changes, it must file an amended Form 568 along with updated Schedules K-1 and a written explanation of the revisions.
- Late filing circumstances: If an LLC failed to file its 2021 return on time, it must still submit Form 568 to establish a tax record, despite incurring late filing penalties and potential interest on unpaid tax liabilities.
- Entity classification rules: LLCs must maintain consistent classification between federal and California filings, including when electing C corporation or S corporation status through federal Form 8832 or Form 2553, which then informs state reporting under Form 568.
Key Rules or Details for the 2021 Tax Year
Understanding the rules that applied to Form 568 for the 2021 tax year is critical for ensuring compliance and avoiding costly errors:
- $800 annual tax requirement: Most California LLCs must pay an $800 yearly tax to the Franchise Tax Board, although LLCs that registered between January 1, 2021, and December 31, 2023, were eligible for a first-year exemption under Assembly Bill 85.
- LLC fee based on total income: In addition to the annual tax, LLCs with California-source total income exceeding $250,000 were required to pay a graduated LLC fee, calculated using Schedule IW and paid by submitting Form FTB 3536.
- Pass-through entity elective tax (PTE): For 2021, eligible LLCs could elect to pay a 9.3% pass-through entity tax on qualified net income at the entity level using Form FTB 3804, allowing members to claim a tax credit and bypass the federal $10,000 SALT deduction limit.
- Nonresident member requirements: LLCs with nonresident members had to collect signed Form FTB 3832 consents or pay tax on the nonresident’s distributive share using Schedule T, based on California source income.
- Estimated payments and deadlines: LLCs were required to pay the $800 annual tax using Form FTB 3522 and the estimated LLC fee using Form FTB 3536 by June 15, 2022, to avoid underpayment penalties.
Step-by-Step (High Level)
To properly file Form 568 (2021), business owners should follow these general steps based on their entity’s structure and California tax filing requirements:
- Gather financial records: Collect all income statements, expense documentation, depreciation schedules, member capital account records, and federal tax forms such as Form 1065 or Form 1120S, depending on classification.
- Pay the $800 annual tax: Submit payment using Form FTB 3522 by April 15, 2021, unless eligible for the first-year exemption; include the California Secretary of State file number when submitting payment.
- Estimate and pay the LLC fee: Use Schedule IW to calculate total income from California sources and pay the estimated LLC fee using Form FTB 3536 by June 15, 2022, even if the final total is uncertain.
- Complete Form 568 and supporting schedules: Fill in Form 568 with accurate income, deductions, and credits; include Schedule K summarizing pass-through amounts and complete Schedule K-1 (568) for each member.
- Address nonresident member requirements: Obtain signed Form FTB 3832 from each nonresident member or calculate the required tax using Schedule T and pay by the original return deadline.
- File and distribute: Submit Form 568 electronically if prepared using tax software, as e-filing is mandatory under California law; distribute Schedule K-1 copies to all members and retain documentation.
Common Mistakes and How to Avoid Them
Each year, many California LLCs make avoidable errors when filing Form 568 (2021); here are the most frequent mistakes and how to prevent them:
- Misunderstanding first-year exemption eligibility: Many LLCs mistakenly paid the $800 annual tax despite qualifying for the exemption; only LLCs organized or registered between January 1, 2021, and December 31, 2023, were exempt for their first taxable year, and this must be clearly indicated by writing “First Year Exemption” on Form 568.
- Missing the LLC fee estimate deadline: LLCs with total California income exceeding $250,000 were required to pay an estimated LLC fee by June 15, 2022, using Form FTB 3536. Missing this deadline or underpaying by more than 10% results in penalties.
- Incorrectly calculating California source income: Some LLCs included out-of-state income when calculating the LLC fee; the fee applies only to California-source income and must be computed accurately using Schedule IW and, when applicable, Schedule R.
- Failing to obtain nonresident member consents: If Form FTB 3832 is not received from nonresident members, the LLC must calculate and pay tax on the member’s distributive share using Schedule T; failing to do so results in additional tax liabilities.
What Happens After You File
Once Form 568 (2021) is submitted, the California Franchise Tax Board typically processes e-filed returns within 4 to 6 weeks and paper-filed returns within 8 to 12 weeks. After processing, each LLC member must receive a copy of their Schedule K-1 (568) to report their distributive share of income, deductions, and credits.
The FTB may issue notices if any discrepancies, math errors, or missing forms are detected, and the agency has four years to audit returns from the filing date. If the return is late or incomplete, penalties and interest may apply.
FAQs
Does a single-member LLC need to file Form 568 (2021)?
Yes, a single-member LLC must still file Form 568 (2021) as a disregarded entity and pay the $800 annual tax if it is doing business in California.
What is the difference between Form 568 and Form 100S?
LLCs use Form 568, while Form 100S is the California S Corporation Franchise or Income Tax Return filed by S corporations.
Can I use Form 568 if my LLC is classified as a C corporation for federal tax purposes?
No, if the LLC has elected to be treated as a C corporation with the Internal Revenue Service, it must file Form 100 instead of Form 568.
What is the California Schedule K (568) used for?
California Schedule K (568) summarizes the LLC’s income, deductions, and tax credits that pass through to its members for individual reporting.
Do I need a California business license to file Form 568?
While not required for filing Form 568 itself, a California business license may be necessary depending on the LLC’s local business activities and jurisdictional rules.
