California small business taxes: Types, rates, deadlines, and how to file in 2025

California is a dynamic hub for business owners, offering a robust economy, innovative markets, and nearly $4 trillion in economic output—the largest of any U.S. state and the fifth-largest in the world. It is home to many successful companies, including Fortune 100 and Fortune 500 firms, and thriving industries like tech, clean energy, and entertainment. While California’s tax system is among the most complex and its business taxes are some of the highest in the country, the state provides valuable tax incentives, such as credits for research, hiring, and sustainability, as well as specialized exemptions for certain industries. Entrepreneurs who stay informed about California’s tax requirements can navigate these challenges, maximize opportunities, and position their businesses for success in this vibrant and competitive market.

Use our guide to help you understand the complexities of California business taxes, from key tax types like payroll to valuable exemptions, credits, and incentives that can reduce your costs. Whether you’re starting a new business in California or refining your tax strategy, this guide is here to support your success.

Refer to the table of contents below to quickly find the information that matters most to you:

• Taxes in California overview
• Key California business tax adjustments for 2025
• California state income taxes
• Types of business taxes in California
• California business tax deductions, credits, and exemptions
• Types of California taxes for different business entity types
• California sales taxes
• How to file business taxes in California
• Year-end business tax checklist
• Commonly missed tax deductions and credits
• Common mistakes to avoid when filing business taxes in California
• Find an accountant to help prepare your California business taxes
• Frequently asked questions

Taxes in California overview

• A graduated state individual income tax, with rates ranging from 1% to 13.3%
• Three types of business income taxes, based on structure and profitability–a corporate tax, franchise tax, or alternate minimum tax, with rates ranging from 1.5% to 10.84%
• 7.25% state sales and use tax plus local taxes in most jurisdictions for an average combined sales tax rate of 8.85%
• Other business taxes may include payroll taxes, excise taxes, and property taxes

Key California business tax adjustments for 2025 

Sales and use tax filing extension

• Due to the recent wildfires, the sales and use tax January 31 filing deadline for affected taxpayers in Los Angeles County has been extended to April 30, 2025.

Alcoholic Beverage Tax Program changes

• Starting January 1, 2024, changes to California's Alcoholic Beverage Tax Program include making beer manufacturers return information public upon request, with personal details redacted for sole proprietors. Taxpayers can opt out of public disclosure by selecting a checkbox on each return, but the opt-out applies only to the specific return filed, not future returns.

State Disability Insurance increase

• The California State Disability Insurance (SDI) rate has increased from 1.1% to 1.2%

Federal tax due date extension

• The IRS is providing tax relief for California taxpayers affected by wildfires, extending various filing and payment deadlines to October 15, 2025. This includes income tax returns, estimated payments, and other tax-related deadlines originally due on or after January 8, 2023.

San Francisco gross receipts tax small business exemption change

• In San Francisco, the gross receipts tax small business exemption increased from $2.25 million to $5.0 million in 2025.

California state income taxes

California has state personal income tax, which you’ll need to withhold from employee paychecks along with other payroll taxes.

What is the state income tax rate in California?

For an individual filer, there are nine tax brackets: from 1% for income under $20,824 to 13.3% for all income over $698,272. 

California also imposes a 1.2% California State Disability Insurance (SDI) Tax on wage income, bringing the top rate to 14.5% as of 2025. In addition, the California Mental Health Services Act is funded by a 1.0% tax on income over $1 million.

Double taxation for small business owners in California

If you own or are planning to open a small business in California, you should be aware that California’s tax code, unlike federal law and most other states, allows for double taxation on small business owners who set up their businesses as pass-through entities, such as S corporations or limited liability companies (LLCs). In California, you will pay both state personal and state business taxes on your money.

Types of business taxes in California

As an employer in California, you may be responsible for reporting and paying other business taxes in addition to withholding payroll taxes from your employees' paychecks. From federal to state and local levels, understanding the different tax programs and their impact on your business’s finances is important.

Federal taxes

You'll be responsible for federal taxes in whatever state you open a business in. Unfortunately, there are dozens of federal tax forms with unique due dates and requirements. Using an accountant or small business accounting software can be helpful in avoiding mistakes that can lead to overpayment or penalties. 

As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:

Personal tax filing

Federal income tax returns:

Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.

Business tax filing

Business owners have additional filing requirements, depending on the business structure:

• Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
• Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
• Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
• S Corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
• Limited Liability Companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.

Self-employment tax

If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

Employment taxes

As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA). 

State taxes

California has a variety of state taxes, including three types of business income taxes. It’s important to know which kinds of taxes your business may be liable for based on your structure and business activities.

California corporate income taxes

California has a flat corporate income tax of 8.84%. This tax applies to C corporations and LLCs (other than banks and financials) that elect to be treated as corporations if they report a profit (taxable income). 

Banks and financials are taxed at a flat rate of 10.84%.

How is the corporate income tax calculated in California?

In California, the corporate income tax rate for C corporations, excluding banks and financial institutions, is 8.84%. To determine the portion of income subject to this tax, California employs an apportionment formula.

Most corporations are required to use a single-sales factor apportionment, which calculates the taxable income based solely on the percentage of the corporation's total sales made to customers within California. However, corporations deriving more than 50% of their gross receipts from qualified business activities may use a three-factor formula that considers property, payroll, and sales.

Who is liable for the corporate income tax in California?

Every corporation that is incorporated, registered, or doing business in California is subject to the state's corporate income tax. Nexus plays a key role in determining liability. A corporation establishes nexus—and is therefore liable for corporate income tax—if it has a sufficient connection to the state. This includes corporations that are:

• Incorporated in California
• Conducting business operations within the state
• Registered with the California Secretary of State
• Generating income from California sources

Corporations with nexus are also required to pay a minimum franchise tax of $800 annually, unless they are newly incorporated or qualified, in which case the minimum tax is waived for their first taxable year.

Alternative Minimum Tax (AMT)

California has an Alternative Minimum Tax rate of 6.65% (8.65% for financial corporations). An alternative minimum tax sets a lower limit for the amount businesses can pay in taxes, regardless of their level of expenses and deductions. 

What is the Alternative Minimum Tax?

The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure taxpayers, particularly corporations, pay a minimum level of tax by limiting certain deductions and tax preferences.

How is the AMT calculated?

AMT is calculated by applying adjustments and preference items to regular income, subtracting an exemption, and taxing the result at 6.65% for general corporations or 8.65% for financial corporations. If the AMT exceeds regular tax, the difference is owed. AMT applies to corporations with adjusted income over $40,000 and may generate future tax credits.

Who is liable for the AMT?

The AMT applies to profitable C corporations and LLCs that elect to be treated as corporations for tax purposes.

California franchise tax and annual tax

California imposes a franchise tax on corporations and an annual tax on certain other business entities for the privilege of doing business in the state.

What are the franchise and annual tax rates?

The franchise tax rate and how it is calculated depends on your business structure and industry:

Franchise tax:

• Applies to C corporations and S corporations
• C corporations: 8.84% of net income or $800 minimum, whichever is greater
• S corporations: 1.5% of net income or $800 minimum, whichever is greater
• S corporations in banking and finance: 3.5% of net income or $800 minimum

Annual tax:

• Applies to LLCs, LPs, and LLPs
• Flat rate of $800 per year

Additional LLC fee:

• LLCs pay an additional fee based on total California income:
• $250,000 - $499,999: $900
• $500,000 - $999,999: $2,500
• $1,000,000 - $4,999,999: $6,000
• $5,000,000 or more: $11,790

The annual tax applies to LLCs, LPs, and LLPs and is distinct from the franchise tax applied to corporations. Sole proprietorships and general partnerships are not subject to either the annual tax or franchise tax.

Who is liable for the franchise or annual tax in California?

If you do business in California, you are subject to its tax laws. Doing business includes the following entities: 

• Corporations incorporated in California
• Corporations registered to do business in California
• Corporations doing business in California
• Limited Liability Companies (LLCs) doing business or organized in California

The minimum franchise tax is $800 for most entities. Newly incorporated or qualified corporations are exempt from the minimum franchise tax in their first taxable year. Corporations are also exempt if they did not conduct any business in California during the tax year and their tax year was 15 days or fewer.

Even inactive corporations must pay the minimum franchise tax unless they meet specific exemption criteria.

Visit the State of California Franchise Tax Board website for the latest information on franchise taxes and your responsibilities. 

Excise taxes

The California Department of Tax and Fee Administration's Business Tax and Fee Division administers over 30 special tax and fee programs that encompass a broad range of activities and transactions. 

Some products and activities that trigger special taxes include alcoholic beverages, cigarettes and e-cigarettes, cannabis, lithium extraction, timber yield, and vehicle fuel. It’s important to review what may apply to your business and understand your tax responsibilities. Here are some examples: 

• Cannabis: The cannabis excise tax is 15% of gross receipts from retail sales of cannabis and cannabis products, with the rate subject to change on July 1, 2025.
• Wine: Wine excise tax is $.20/gallon for wine and $.30/gallon for sparkling wine. 
• Cigarettes: Cigarettes are currently taxed at $0.1435/cigarette ($2.87/pack of 20)

See the California Department of Tax and Fee Administration for details on special taxes and fee programs. 

Unemployment taxes

If your business has employees, you will need to pay employment or payroll taxes. While some are federal, others are payable to the state of California. Contributions may be employee-only, employer-only, or shared. 

• California personal income tax withholding for each employee is set at marginal rates of 1.0% to 14.4%.
• California State Disability Insurance (SDI) is funded solely through employee contributions and is withheld at a rate of 1.2% for 2025. Effective January 1, 2024, all wages are subject to SDI contributions, with no taxable wage limit.
• California state Unemployment Insurance (UI) and Employment Training Tax (ETT) are funded solely by employers. The UI rate ranges from 1.5% to 6.2%. The new Employer UI rate is 3.4%. The ETT rate is 0.1%. Both UI and ETT have a taxable wage limit of $7,000 per employee per calendar year.

All employers are required to electronically submit employment tax returns, wage reports, and payroll tax deposits to California’s Employment Development Department.

California Sales and Use Tax

California has a statewide sales and use tax rate of 7.25%. (Most local jurisdictions also charge sales tax, known as district taxes.) 

All retailers engaged in business in California have to register with the California Department of Tax and Fee Administration (CDTFA) and pay the state's sales tax on all non-exempt retail sales of goods and merchandise. The use tax generally applies to the storage, use, or other consumption in California of goods purchased from retailers in transactions that weren’t subject to the sales tax. Use taxes can also apply to purchases shipped to a California consumer from another state, including purchases made by mail order, telephone, or Internet.

Remote seller tax considerations

Remote sellers are out-of-state sellers whose only activity in California is the remote solicitation of sales (through internet, mail, phone, etc). In 2019, California enacted legislation requiring remote sellers to collect and remit sales tax if they have an economic presence in the state, even without physical presence. Remote sellers must register with the CDTFA and collect California sales and use taxes if their total sales of tangible personal property for delivery in California exceed $500,000 during the current or prior calendar year.

Local taxes

Some cities, counties, and other jurisdictions in California levy additional local taxes to fund essential services and infrastructure such as schools, roads, and public safety.

Local and district taxes 

Most local jurisdictions charge their own sales tax, which is added to the state’s rate. These are also known as district taxes. These local rates currently range from 0.10% to 1.50%. You can locate your local rate on the state tax and fee department’s list of effective sales and use tax rates. Keep in mind that rates can change over time and certain areas may have multiple district taxes in effect.

As of April 25, 2019, all retailers, whether located inside or outside of California, are required to collect district use taxes on sales made for delivery in any district that imposes such taxes if their total combined sales of tangible personal property in California or for delivery in California exceed $500,000 in the preceding or current calendar year. This $500,000 threshold applies to both taxable and nontaxable sales, including sales for resale. Once a retailer meets this threshold, they are considered engaged in business in every district in California, regardless of physical presence, and must immediately begin collecting and remitting district use taxes.

Property taxes

Although there are no statewide property taxes, property taxes are the primary source of revenue for local governments in California. The California property tax rate is determined by each county assessor and varies widely depending on the location of the property. Unlike business and income taxes, California’s property taxes tend to be relatively low compared to other states.

California business tax deductions, credits, and exemptions

California offers a range of business tax deductions, credits, and exemptions aimed at reducing taxable income and incentivizing specific economic activities. These state-level incentives can significantly lower a business's overall tax burden. Below are a few examples. 

• California Competes Tax Credit (CCTC): The California Competes Tax Credit incentivizes businesses to establish, expand, or remain in California through a five-year agreement with the Governor’s Office of Business and Economic Development. To claim the credit, businesses must meet yearly milestones for job creation, salaries, and investment, earning the credit for each year they fulfill these commitments.
• California research credit: The California research credit is available to certain companies engaged in qualified research within the state. The credit equals 15% of qualified expenses above a base amount plus 24% of basic research payments.
• The Homeless Hiring Tax Credit (HHTC): This credit is available to December 31, 2026, offering employers $2,500 to $10,000 per eligible employee based on hours worked, up to $30,000 per year. To claim the credit, employers must obtain a certification for each eligible employee, pay wages at least 120% of California's minimum wage, and make a tentative credit reservation within 30 days of hiring or 60 days of receiving certification. The credit is claimed when filing the tax return.
• Cannabis Equity Tax Credit (CETC): The CETC is available from January 1, 2023, to December 31, 2027, offering qualified cannabis businesses a $10,000 tax credit. Eligible businesses must be equity licensees approved for the fee waiver and deferral program by the California Department of Cannabis Control.

Credits and exemptions for California sales tax

Certain businesses and activities in California qualify for full or partial sales tax exemptions or credits, offering significant savings on purchases directly tied to their operations.

Teleproduction and postproduction services

A partial exemption reduces the state sales and use tax for qualified machinery, equipment, and component parts used primarily in teleproduction or postproduction services. This exemption also covers property used for maintenance, repair, measurement, or testing of such equipment, as well as rental receipts for qualifying machinery. The exemption applies only to the state tax portion and does not affect local, city, county, or district taxes. 

Farm equipment and machinery 

A partial exemption applies to the state portion of sales and use tax for the sale, lease, or use of farm equipment, machinery, and parts used primarily (50% or more) in producing or harvesting agricultural products.

Alternative energy and advanced transportation 

Sales and use tax exclusions apply to tangible personal property purchased by a “participating party” or contractors for eligible projects in alternative energy, advanced transportation, advanced manufacturing, or recycled feedstock. To qualify, applicants must apply through the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA).

For details on available sales tax exemptions and credits, consult the California Department of Tax and Fee Administration and the California State Treasurer's Office. These agencies provide up-to-date information and guidance on tax incentives that may benefit your business operations.

Types of California taxes for different business entity types

Not all businesses pay taxes the same way. Different types of business entities in California may be subject to different taxes. If you haven’t set up your business yet and are considering options for structuring it, knowing the tax rules can help you make a decision. 

Of course, all types of businesses will need to pay federal personal or corporate income tax, depending on their structure, plus unemployment insurance and any sales and use, property, or excise taxes that apply to their specific business.

California sales taxes

The statewide sales and use tax rate in California is 7.25%, which applies to the sale, lease, and rental of tangible personal property. Local jurisdictions may impose additional district taxes, leading to higher overall rates in certain areas. 

California generally does not tax services. However, certain services are taxable, particularly when they result in the creation or manufacturing of tangible personal property. For example, manufacturing labor is taxable, whereas repair labor—like altering used clothing—is typically exempt.

Do you need a sales tax permit?

If you conduct business in California and intend to sell or lease tangible personal property subject to sales tax, you are required to register for a seller's permit from the California Department of Tax and Fee Administration. This requirement applies to individuals, partnerships, corporations, and limited liability companies. You can register online.

How to file business taxes in California

To file business taxes in California, determine your business structure and file federal taxes using the appropriate IRS forms. At the state level, register with the California Department of Tax and Fee Administration for a seller’s permit, payroll accounts, or other applicable registrations based on your business activities. File required state tax returns, such as income tax or sales and use tax returns, by the deadlines. Maintaining detailed financial records ensures compliance. For forms and guidance, visit the CDTFA and Franchise Tax Board (FTB) websites.

When are business taxes due in California? 

In California, businesses are subject to various tax obligations, each with specific due dates.

Sales and use taxes

Filing frequency is based on the amount of sales tax collected:

• Annual filers: Returns are due by January 31 each year for businesses with a sales tax liability of $100 or less per month.
• Quarterly filers: Returns are due on the last day of the month following each quarter for businesses with a sales tax liability between $101 and $1,200 per month.
• Monthly filers: Returns are due on the last day of the following month for businesses with a tax liability exceeding $1,200 per month.

If the due date falls on a weekend or holiday, the deadline is extended to the next business day. For more details, visit the CDTFA website.

NOTE: Due to the recent wildfires, the sales and use tax January 31, 2025 filing deadline for affected taxpayers in Los Angeles County has been extended to April 30, 2025.

Corporate income tax

• C corporations: Returns are due by the 15th day of the 4th month after the end of the taxable year (e.g., April 15 for calendar-year corporations).
• S corporations: Returns are due by the 15th day of the 3rd month after the end of the taxable year (e.g., March 15 for calendar-year S corporations).

For more information, see the FTB website.

Franchise and annual taxes

Franchise taxes for corporations are due as follows:

• Corporations: April 15
• S corporations: March 15

Annual tax (or LLCs, LPs, and LLPs:

Due by the 15th day of the 4th month after the beginning of the taxable year

Estimated taxes

California businesses may need to make quarterly estimated tax payments:

• C corporations: Estimated payments are required if the annual net tax liability exceeds $500. Payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation’s fiscal year.
• Pass-through entities (S corporations, partnerships): Entities making the SALT Parity election must make estimated payments if their liability exceeds $5,000.
• Individuals reporting business income: Estimated payments are required if total tax liability exceeds $500 for single filers or $1,000 for joint filers.

Estimated tax payment deadlines:

• 1st Quarter: April 15
• 2nd Quarter: June 15
• 3rd Quarter: September 15
• 4th Quarter: January 15 (following year)

If any due date falls on a weekend or holiday, payments are due the next business day. For additional information, visit the CDTFA or FTB websites.

Los Angeles County Federal Tax Extensions

The IRS has extended tax relief to individuals and businesses in Los Angeles County affected by wildfires and straight-line winds that began on January 7, 2025. Taxpayers in the disaster area now have until October 15, 2025, to file federal returns and make payments originally due during this period.

Key deadlines affected:

• Individual income tax returns and payments typically due April 15, 2025.
• 2024 estimated tax payments typically due January 15, April 15, June 16, and September 15, 2025.
• Payroll and excise tax deposits typically due January 7–22, 2025, will avoid penalties if paid by January 22, 2025.
• Quarterly payroll and excise tax returns typically due January 31, April 30, and July 31, 2025.
• Business and organization returns typically due as follows:
• Partnerships and S corporations: March 17, 2025
• Corporations and fiduciaries: April 15, 2025
• Tax-exempt organizations: May 15, 2025

Year-end business tax checklist

Stress less during tax season. Use this small business tax checklist to ensure you have everything you need to stay organized throughout the year and file your taxes accurately and on time:

Year-round business tax preparation

• Maintain accurate records: Keep detailed records of all income and expenses throughout the year.
• Categorize expenses: Organize your expenses into relevant categories for easier tax preparation.
• Reconcile bank accounts: Regularly reconcile your bank accounts to ensure accuracy and identify any discrepancies.
• Track mileage: If you use your vehicle for business purposes, keep a detailed mileage log.
• Stay informed: Keep up-to-date on federal and state tax laws and regulations that might affect your business.

Pre-filing checklist

• Gather necessary forms and documents: Previous year's tax returns (up to three years prior for both state and federal)
• Accounting journals and ledgers
• Balance sheet and income statement
• Transactional supporting documents (bank deposit slips, bank statements, invoices, checkbook, credit card statements)
• Vehicle and mileage logs
• Expense receipts
• Employee tax forms (W-9, I-9, W-2, 1099)
• Non-employee tax forms (1099-MISC)
• State tax forms
• List of home office deductions (if applicable)
• Understand which tax forms to file: Determine the specific tax forms required for your business structure and tax obligations.
• Review and verify information: Double-check all information for accuracy before filing.
• Consider estimated taxes: If required, calculate and pay estimated taxes throughout the year.

Filing and beyond

• File your tax returns: Submit your tax returns electronically or by mail before the deadline.
• Request filing extensions (if needed): If you need more time to file, request an extension before the deadline.
• Keep copies of your tax returns: Store copies of your filed tax returns for future reference.
• Plan for next year: Start organizing your records and planning for the next tax season.

Commonly missed tax deductions and credits

Take advantage of valuable tax breaks. Many small businesses overlook possible deductions and credits that could significantly reduce their tax liability. Be sure you claim all the deductions and credits you qualify for.

Common business tax deductions

• Advertising
• Depreciation of assets
• Employee salaries and benefits
• General business expenses
• Home office expenses
• Insurance
• Business loan interest
• Internet and phone services
• Legal services
• Licenses
• Meals and entertainment (for business purposes)
• Business-related travel and mileage expenses
• Commercial property rent 
• Training and education
• Cost of goods sold (COGS)
• Business banking fees

Proper documentation and recordkeeping are essential to justify deductions in case of an audit. Consulting a tax professional can help ensure compliance with tax laws and maximize your eligible deductions.

Small business tax credits

Take time to familiarize yourself with the variety of business tax credits that may be available to you. Here are some common ones: 

• Alternative Motor Vehicle Credit for electric cars and hybrids used for business
• Disabled Access Credit for expenses related to improving accessibility
• Investment Credit, including credits for energy, reforestation, and rehabilitation projects
• Paid Family and Medical Leave Credit for eligible employers providing paid leave
• Small Employer Health Insurance Premiums Credit for employers with fewer than 25 employees contributing to health insurance premiums
• Work Opportunity Credit for businesses hiring individuals from targeted groups

For a complete list of federal tax credits and detailed eligibility requirements, visit the IRS website.

In addition to the federal tax incentives, consider if you could qualify for ones specifically for California businesses, such as:

• High Road Cannabis Tax Credit. Commercial cannabis businesses may qualify for this credit if they provide their employees with above-minimum wages, benefits, and safety training and equipment
• Motion picture and television production credits. California offers several tax credits for motion picture and television productions, including the Original, New, Program 3.0, and Soundstage Filming Tax Credits, with Program 4.0 launching mid-2025. Corporations can use some of these credits to reduce taxes below the Tentative Minimum Tax (TMT), while individuals can apply Program 3.0 and Soundstage credits to reduce regular tax below the TMT. These incentives support productions filmed in California.

Where do I send my California tax reports and payments?

You can pay your taxes online via the Franchise Tax Board website. You can make a payment through your bank account, with your credit card, or request an installment plan. You can make payments for annual taxes, fees, balances due, current or amended tax returns, estimated taxes, and extensions. Partnerships should use the FTB Issued ID number if the SOS number is unavailable. Sole proprietors must use Web Pay Personal.

If you choose to mail your payment, check the website for correct mailing addresses. 

Should I file and pay by paper or electronically? 

You can pay online and file paper returns for franchise and corporate taxes in California. However, certain taxpayers must make electronic tax payments. According to the Franchise Tax Board (FTB), if you make an estimated tax or extension payment over $20,000, or if your original tax return shows a total liability exceeding $80,000, all subsequent payments must be made electronically, regardless of amount or tax type. Noncompliance incurs a 1% penalty.

Common mistakes to avoid when filing business taxes in California

California has a complex tax system, but with a little preparation, you can avoid costly mistakes and keep your business on the right track. Here are some common pitfalls to watch out for.

Misclassifying workers

Make sure you're correctly classifying your workers as employees or independent contractors. Misclassification can lead to hefty penalties and back taxes.

Missing deductions

Don't leave money on the table. Explore all eligible deductions, such as those for home office expenses, business travel, and equipment purchases.

Forgetting about the annual minimum tax

Remember that with some exceptions, most corporations and LLCs in California are subject to an annual minimum tax of $800, regardless of profitability. 

Overlooking sales tax

If your business sells taxable goods or services, ensure you're collecting and remitting sales tax correctly. California has a complex sales tax system with varying local rates, so stay informed.

Failing to pay estimated taxes

If you expect to owe a significant amount in taxes, make sure you're paying estimated taxes throughout the year to avoid penalties.

By staying organized, understanding the tax laws, and seeking professional advice when needed, you can navigate California’s tax landscape with confidence and keep your business on the path to success.

Find an accountant to help prepare your California business taxes

California's business tax structure is known for its complexity, with varying requirements and obligations depending on the type and size of the business. Because of the importance of correct filing to avoid overpayments or fines, consider hiring an experienced accountant or bookkeeper who’s knowledgeable about tax issues and California tax laws and codes. 

In California, there is no specified license to become a tax preparer, but they do need to meet certain requirements. You’ll want to ensure your tax preparer:

• Meet IRS requirements
• Has a Preparer Tax Identification Number (PTIN) and an Electronic Filing Identification Number (EFIN)
• Has registered as a tax preparer with the California Tax Education Council (CTEC) 
• Completed CTEC requirements which include an education course, fees, and background check

Preparers do not have to register with CTEC if they are California Certified Public Accountants (CPAs), enrolled agents (EAs), attorneys who are members of the California State Bar, or certain banking or trust officials.

Find an accountant in California here, and consider using the right small business accounting software to streamline your finances and ensure you're prepared for tax season with accurate reporting.

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