Tax Laws for California Corporations
Paying taxes on your profits is a part of every
business, but taxes you are required to pay as California Corporations will vary depending on a few variables. Do you have employees?
Does your California Corporation own property? Are you a retailer
that sells or purchases goods subject to sales or use tax?
Depending on your answer, there are 5 different types of tax
you may pay as California corporations:
- State and Federal Income Tax
- Self-Employment Tax
- State and Federal Payroll Taxes
- Sales and Use Tax
- Property Tax
State and Federal Income Tax
This is a tax on you and/or your business's net
income. If your business has net profit reported on your
individual income tax return from a partnership or S
corporation,
you pay any California or federal income tax liability
by making quarterly estimated tax payments.
If your business is a corporation, or a limited
liability company structured
as a corporation, the quarterly estimated tax payments are made by the
business and apply to the businesses tax return.
Self-Employment Tax
Self-employment tax is social security and Medicare tax for people who
are self-employed. This tax applies to those who are sole
proprietors with a net profit of $400 or more during the
year. It also applies to
individuals who have a net profit of $400 or more during
the year from the partnership or Limited Liability Company
that is structured as a partnership.
This tax does not typically apply to C
and S class California corporations. Incorporating in California allows
you to avoid the typical double taxation of a proprietorship
or partnership.
State and Federal Payroll Taxes
Employers are required to report all employee wages to EDD "Employment
Development Department" each calendar quarter. With the exception of some
employers of household workers, periodic deposits of State
Disability Insurance (SDI) and Personal Income Tax (PIT)
withholdings are required.
The frequency of the employer's deposit schedule is determined
by the employer's federal deposit schedule and the amount
of PIT withheld. An annual reconciliation of state income
tax withholding is
also required.
In addition to withholding and depositing federal income tax, social
security, and Medicare taxes from an employee's wages, employers are responsible
for withholding and paying a matching amount for social security and Medicare
taxes.
Sales and Use Tax
Retailers are required to pay sales and use taxes and file tax returns.
Although you are required to pay and report sales and use
taxes to the Board of Equalization (BOE), you may be reimbursed
by your customer for
the amount of tax you owe on a sale. It is the retailer's
responsibility to report the correct amount of tax for
the sale and to pay the tax to
the BOE to avoid paying a penalty and interest charges.
Property Tax
In California, all property is taxable unless otherwise provided for
in the California Constitution. Property is taxed in the county where
it is owned, claimed, possessed, controlled or managed. The maximum general
tax rate is one percent plus any bonds approved by popular vote.
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