15 Day Rule Lets You Avoid a year of California Taxes and Enjoy Yearlong Protection of an LLC
A two member LLC may enjoy the pass through effect of a Subchapter S corporation or partnership for purpose of Federal taxes.
December 6, 2017
It has been called the Christmas gift for California businesses that keeps on giving.
California has a little-known device for avoiding certain taxes when filing an LLC or corporation, that is only available the last 2 weeks of December. Businesses started during the last 2 weeks of the year pay no taxes for 2017, but enjoy the corporate shield for the entire year.
As the end of every year, some entrepreneurs suddenly decide to start a new business or incorporate and existing DBA. The limited liability company ("LLC") is one vehicle that protects their personal assets from the debts and liabilities of their business.
The "15-day rule," is only available to newly formed California LLCs, so new businesses and startups need to do a little planning in order to take advantage of it. A two member LLC may enjoy the pass through effect of a Subchapter S corporation or partnership for purpose of Federal taxes.
"Start it before December 15th, 15 days or less from the end of the calendar year. It will be considered a disregarded entity for purposes of Federal taxes," explains Kevin at http://www.SignatureFiling.com, an online filing company that competes with Legal Zoom. He says that his company, which offers DBAs and other corporate entities in all 50 states, is prepared for the rush of end of year filings.
California corporations and LLCs pay an $800 minimum tax to the Franchise Tax Board each year, ordinarily on the 15th of April. But if the corporate entity is formed in the last 15 days of the year and conducts no business during that 15 day period, no FTB minimum tax will be due until the 15th of April, 2019.
Turn around on filing LLC's is general 7 to ten business days. It is possible to pay an expedite fee of $350, Kevin says, and get them back in 2 days. However, it is not necessary to pay the expedite fee to take advantage of the 15 day rule, since LLC's and Corporations are given the filing date upon which they are submitted to the California Secretary of State's office.
"Consult your CPA or Attorney for tax or legal advice, says Kevin, noting that Signature Filing is not a law firm and doesn't offer people legal advice.
The FTB's website notes that when it comes to counting months for a tax year (that is more than 15 days), there is no 15-day rule in the law. Any fraction of month, counts as a full month, whether it be at the beginning of a tax year, such as the start of a new business, or at the end of a tax year. December is an exception, as explained above. https://www.ftb.ca.gov/Archive/professionals/taxnews/2015/February/09.shtml