A California LLC: what it does and what it costs to keep
"Open an LLC and you'll pay less tax" is one of the most common pieces of advice, and one of the least accurate. An LLC is useful, but what it saves is risk, not tax. Here is what it actually does and what it costs in California.
What an LLC does
Mainly, it separates your personal assets from the business. If the company has debts or gets sued, its assets are at risk, not your house or personal accounts. That protection only holds if you run the company as a separate entity: its own bank account, contracts in the LLC's name, no personal spending from the business account.
What an LLC doesn't do
A single-member LLC is "disregarded" for federal tax. Its income goes on your personal return on Schedule C, like any self-employed person. The 15.3% self-employment tax doesn't go away. An LLC on its own doesn't lower your tax.
Savings come in when, with enough profit, the LLC elects to be taxed as an S-corp. More in the post on when a self-employed person should consider an S-corp.
What an LLC costs in California
- $800 annual tax. Due every year, even with no income and no activity. The first payment is due by the 15th day of the 4th month after formation.
- LLC fee. If the LLC's total California income is $250,000 or more, a fee of $900 to $11,790 is added depending on the amount.
- Form 568. The LLC's state return, filed every year, even for a single-member LLC.
- Statement of Information. Company details filed with the Secretary of State every two years, $20.
- Formation. The state filing fee, plus a registered agent if you'd rather not list your own address.
So at least $800 a year plus preparing Form 568, even if the business made nothing.
An out-of-state LLC doesn't help
People are often told to form in Wyoming or Delaware because it's cheaper. But if you live and work in California, the company must register here as a foreign LLC and pay the same $800. You end up paying two states instead of one.
When you need one and when you can wait
An LLC makes sense if:
- you have employees, business clients or contracts with liability;
- there's a real risk of lawsuits: construction, trucking, repairs, work at client sites;
- you rent out property;
- your profit has reached the point where an S-corp is worth considering.
You can wait if it's a small side income without serious risk: working as a sole proprietor with good liability insurance is often enough.
Closing one you don't need
If you no longer need the LLC, close it officially. Otherwise the $800 keeps accruing every year along with penalties. Simply stopping payment doesn't close it.
Before forming a company, work out what it will cost and what it will do for you. I'll help you choose the structure and form it.
Sources: FTB: Limited liability company, FTB 3522, FTB 3536, CA Secretary of State: Statements of Information, IRS: Single member LLCs. Checked October 26, 2026.