State Income Taxes in California
The state of California does have an individual income tax. Like most states with income tax, it is calculated on a marginal scale, with ten (10) tax brackets. They range from 1.00% to 13.30% (one of the highest in the country). The highest bracket of 13.30% starts for income greater than $1 Million.
Local income tax – If you live or work in the City of San Francisco, their is an additional local income tax imposed on you through a Payroll Tax of 0.38%.
State Business Taxes in California
The State of California has a multiple types of business taxes, Corporate Income Tax, Franchise Tax and an LLC Fee.
Corporate Income Tax – is assessed on C Corporations at a flat rate of 8.84% on all net income.
Franchise Tax – is assessed on other business entities (e.g. S-Corps, LLCs, LLPs, etc.)
- S Corporations have a Franchise tax of 1.5% on net income.
- LLCs and LLPs have a minimum Franchise Tax of $800
LLC Fee – in addition to the $800 franchise tax, LLCs must pay a Gross Receipts tax disguised as a fee. The LLC fee ranges between $900 and $11,790, depending on your Gross Receipts.
LLPs & LPs – do not have to pay a fee, but the members are also not protected or shielded from personal liability.
Note: flow-thru entities, such as S Corps, LLCs, and LLPs pay tax at the individual state tax rates of 1.00% to 13.30% depending on the bracket they are in.
Sales and Property Taxes in California
Sales Taxes – like many states, California has multiple sales tax rates. One at the state level and another at the local level. The state rate is 7.25% the average local rate is 1.41% (total average rate for California Sales Tax is 8.66%).
Property Taxes in California – the average property tax rate for residential property in the state of California is 0.74%, however this is artificially low due to the infamous Prop 13* which limits the increase of property tax in California, year-on-year.
Prop 13 Real Estate Taxes
Prop 13 is a proposition that was signed into law back in 1978. It states that property taxes are based on the value of the property when that property is assessed by the state. An assessment is trigger when the property is transferred. Therefore, some people who purchased their home in the 70s or 80s pay a much lower property tax than those that bought their home a few years ago. Please check with a Real Estate Tax Attorney in California before transferring title of your property to a loved one, LLC, or trust.
Payroll taxes in California
Payroll (Unemployment Insurance) taxes are paid by business on the behalf of their employees to fund unemployment insurance to the state. It consists of multiple factors. Below is an outline of the most common ones in California –
- Wage Base – California’s wage base is $7,000 (which is low)
- New Employers – UI Contribution Tax is 3.40% for all new employers
- Employment Training – There is an additional 0.10% for ETT for all employees
- Disability – All employees must withhold and additional 1.00% for SDI for the first $122,909 of wages they make in California
- UI Rates – range from 0.10% to 5.40%
California Business Entities – LLCs
California has the highest LLC fees in the country. They are broken down into two components: a franchise tax, and an LLC fee. Here are some important facts:
- California LLC Franchise Tax is $800 annually
- California LLC Fee ranges from $900 to $11,790, based on your gross receipts
- When you register with the state, you pay a one time fee of $90
- Secretary of State of California – click here