Form 568 (2022): Limited Liability Company Return of Income

What Form 568 (2022) Is For

Form 568 (2022) is the official California Limited Liability Company Return of Income used by limited liability companies (LLCs) to report income, deductions, and tax liabilities to the California Franchise Tax Board. It applies to LLCs treated as partnerships or disregarded entities for federal tax purposes. This form is used to calculate and report the mandatory $800 annual tax, the LLC fee based on gross California-source income, and member-level details through California Schedule K-1. It does not apply to LLCs that elect to be taxed as corporations under the Internal Revenue Code.

When You’d Use Form 568 (2022)

You may be required to file Form 568 (2022) in a variety of business or compliance scenarios:

• Regular filings during the taxable year: Form 568 is filed annually by all LLCs organized, registered, or doing business in California and not classified as corporations.
  
  
• Late filings after the deadline: If your LLC missed the original due date, you must still submit Form 568 and pay any penalties assessed by the California Franchise Tax Board.
  
  
• Filing an amended return: You are required to file an amended return if the Internal Revenue Service adjusts your federal return or you discover errors that affect your state tax reporting.
  
  
• Dissolving an LLC or filing a final return: If the LLC is closing, you must file Form 568 as a final return and follow dissolution procedures using Form LLC-4 or Form LLC-4/7.
  
  
• Multi-state income reporting: If your LLC earns income attributable to California but is formed elsewhere, Form 568 must be filed to report California-source income.

Key Rules or Details for the 2022 Tax Year

California law imposes several rules and requirements for limited liability companies filing Form 568 (2022):

• Who must file: Any LLC organized, registered, or doing business in California that is not taxed as a C corporation or S corporation under the Internal Revenue Code must file Form 568.
  
  
• Annual $800 tax requirement: All applicable LLCs must pay a nonrefundable yearly tax of $800 using Form 3522, regardless of business activity or income earned during the year.
  
  
• LLC fee based on gross California-source income: LLCs with more than $250,000 in California-source income must pay a tiered fee ranging from $900 to $11,790 using Form FTB 3536.
  
  
• Nonresident member rules: LLCs with nonresident members must either obtain a signed Form FTB 3832 or pay tax on the member’s distributive share at the highest marginal rate using Schedule T.

Step-by-Step (High Level)

The following steps outline how to prepare and file Form 568 (2022) in compliance with California filing requirements:

1. Determine filing requirement: Confirm whether your LLC is required to file based on whether it is organized in California, registered with the Secretary of State, doing business in the state, or has California-source income.
   
   
2. Pay annual tax: Use Form 3522 to submit the $800 California Franchise Tax by the 15th day of the 4th month of your LLC’s taxable year, even if no income was earned.
   
   
3. Estimate and pay LLC fee: Calculate total California-source income using Schedule IW, and submit the estimated cost with Form FTB 3536 by the 15th day of the 6th month.
   
   
4. Gather records: Compile all business activity documents, including gross receipts, expenses, tax identification numbers, and income documentation such as Form 1099s or W-2s.
   
   
5. Complete Schedule IW: Use this worksheet to calculate total California-source income, which determines the required LLC fee tier.
   
   
6. Complete Form 568: Include all required schedules, such as California Schedule K, Schedule M-1, and Schedule T, if applicable, based on entity structure and member status.
   
   
7. Prepare and distribute Schedule K-1 forms: Issue a California Schedule K-1 to each member, accurately reflecting their share of the LLC’s income, deductions, and tax credits.
   
   
8. Handle nonresident consents: Obtain signed Form FTB 3832 from nonresident members or calculate and pay their taxes using Schedule T if they do not consent.
   
   
9. Assemble and file the return: Attach all supporting forms and schedules to Form 568 and send it to the correct Franchise Tax Board mailing address, depending on whether payment is included.
   
   
10. File an extension if needed: Use Form FTB 3537 to file an extension, but note that the extension only applies to the return, not the payment due date.

Common Mistakes and How to Avoid Them

Taxpayers should avoid these frequent errors when filing Form 568 (2022):

• Missing or incomplete Schedules K-1: Ensure that each LLC member receives a properly completed California Schedule K-1 with accurate percentages, tax identification numbers, and entity classifications.
  
  
• Sending the $800 payment with Form 568: Avoid delays by submitting the $800 annual tax separately using Form 3522 and not with the Form 568 return package.
  
  
• Underpaying the estimated LLC fee: Use cautious income estimates or match the prior year’s LLC fee when completing Form FTB 3536 to avoid a 10% underpayment penalty.
  
  
• Not securing consent from nonresident members: Submit Form FTB 3832 for each nonresident member or calculate and pay their share using Schedule T to stay compliant.
  
  
• Improper ownership percentages: Report ownership interests in decimal format to four places (e.g., 0.2500) and avoid using fractions or percentage symbols.
  
  
• Using unapproved K-1 formats: Use only FTB-approved software or official California Schedule K-1 forms to avoid processing issues or rejection.

What Happens After You File

Once Form 568 (2022) is filed, the California Franchise Tax Board processes the return and compares the information against prior filings and tax payment history. If discrepancies, underpayments, or missing documents are found, the LLC may receive a Return Information Notice, Notice of Balance Due, or a Past Due Notice. Penalties for late filing, late payment, or underpayment of fees may be assessed, and interest accrues on outstanding amounts. 

FAQs

Can I file Form 568 (2022) if my LLC is treated as an S corporation?

No, LLCs that have elected to be taxed as an S corporation using Form 8832 or Form 1120S must file a California S Corporation Franchise or Income Tax Return instead of Form 568.

Do I still need to file if my foreign LLC only holds a California business license?

Yes, foreign entities registered with the California Secretary of State or holding a business license are subject to filing requirements if they meet the definition of doing business in the state.

What forms are required if I am filing an amended return for Form 568?

To file an amended return, you must complete a new Form 568, check the “Amended Return” box, and submit corrected Schedules such as California Schedule K-1, Schedule L, and any other impacted documents.

Does filing an income tax return like Form 1040 affect Form 568?

Yes, for disregarded entities and pass-through entities, items reported on Form 1040 or Form 540 may require alignment with California reporting, especially when filing a California Nonresident or Part-Year Resident Income Tax Return (Form 540NR).

Is there any relief available for late filing penalties or EDD penalties?

Yes, penalty relief, including penalty abatement for failure to file a penalty or failure to pay a penalty, may be available through reasonable cause or a penalty waiver under California personal income tax law or by appeal through the Franchise Tax Board.