All About Business March 2020 Tax News

Remind your clients that own a disregarded SMLLC, to file a tax return (Form 568)

A single member limited liability company (SMLLC) that is disregarded for federal tax purposes, is also disregarded for California tax purposes subject to certain exceptions.[1]

However, California law explicitly provides that the separate existence of the eligible business entity is not disregarded for purposes of the:

  • LLC tax[2]
  • LLC fee[3]
  • LLC return filing requirement[4]
  • Tax credit limitations[5]

Generally, a disregarded SMLLC must file a Form 568 by the same deadline applicable to the owner's tax return. California grants an automatic extension of time to file a return. An extension of time to file is not an extension of time to pay the LLC tax or fee.

In addition, California law limits the amount of credits the owner of a disregarded SMLLC can claim.[6]

Taxpayers should be aware that credits attributable to the activities of an SMLLC are limited to the increase in the owner's regular tax, (tax before reduction by any credits), that results from including the income and expenses attributable to the disregarded entity.

Taxpayers should also be aware that a disregarded SMLLC is required to:

  • File a tax return (Form 568)
  • Pay the LLC annual tax
  • Pay the LLC fee (if applicable)

Items of income, deduction, and credit (after applying appropriate limitations) from the SMLLC should be included in the owner’s tax return.

Visit our Due dates for Businesses webpage for more information.

[1]Revenue and Taxation Code (R&TC) Section 23038

[2]R&TC Section 17941

[3]R&TC Section 17942

[4]R&TC Section 18633.5

[5]R&TC Sections 17039 and 23036

[6]R&TC Sections 17039 and 23036