Multi-state Income Taxes | Companies expanding into California

California State Tax

California is a great state to do business in, despite the higher tax liability in this state. The state is home to many major cities like Los Angeles, San Diego, and many others with massive populations. California also boasts a booming economy that would benefit any business. Because of its diversity and population size, California offers businesses the opportunity to thrive, regardless of its business industry. Talent also wouldn’t be a problem for businesses expanding into this state as California has over 400 institutions of higher learning, making it the state with the most colleges and universities in the US. 

California State Taxes

If you have recently expanded your business into this state, or if you’re considering doing so, understanding the cost of apportionment is important to help you accurately report earnings to the IRS and local governments. 

  • S Corporations

    • Filing Requirements
      • You must file California S Corporation Franchise or Income Tax Return (Form 100S) if the corporation is:
        • Incorporated in California
        • Incorporated in California
        • Doing business in California
        • Registered to do business in California with the Secretary of State
        • Receiving California source income
    • Allocation and Apportionment
      • One Factor Formula: Gross receipts
        • All trade or businesses, except those that derive more than 50% of their gross receipts from qualified business activities (QBA), must apportion their business income to California using a single-sales factor.
      • Market-based apportionment
        • Revenues received from customers within the state.
  • Partnerships

    • Filing Requirements
        •  Partnership file Form 568, Limited Liability Company Return of Income.
        • General corporation file Form 100, California Corporation Franchise or Income tax Return.
        • S corporation file Form 100S, California S Corporation Franchise or Income tax Return.
        • Disregarded entities, see General Information R, Check-the-Box Regulations.
      • LLCs classified as partnerships should not file Form 565, Partnership Return of Income. The LLC will file Form 565 only if it meets an exception.
    • Allocation & apportionment
      • One factor formula: Gross receipts
        • All trade or businesses, except those that derive more than 50% of their gross receipts from qualified business activities (QBA), must apportion their business income to California using a single sales factor.
      • Market Assignment: R&TC Section 25136 requires all taxpayers to assign sales, other than sales of tangible personal property, using the market assignment. For more information, get Schedule R or go to ftb.ca.gov and search for market assignment.
  • Employees & individual filers

    Generally, you must file a California income tax return if you’re a resident, part-year resident, or nonresident and:

      • Are required to file a federal return
      • Receive income from a source in California
      • Have income above a certain amount
      • If you qualify for the California Earned Income Tax Credit (EITC), you can get up to $3,027
      • If you had money withheld out of your paycheck for state taxes, you may be able to get a refundIf you do not owe taxes or have to file, you may be able to get a refund.

Ensuring Accurate Tax Filing

Keeping a handle on these different laws and tax implications might be difficult for your staff members but can be accomplished by outsourcing a CPA. Allow an expert who deals with business structuring, accounting, and taxation regularly set up accounting software to factor in applicable tax laws for each US state.

Fusion CPA recently expanded into new states bringing us firsthand experience and knowledge. We have a team of certified public accountants who are highly skilled in handling multistate taxes. Our team of professionals understands the federal and state laws in various states and jurisdictions.

Fusion CPA

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.

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