California tax issues
Many people in California complain about the difficulty of doing business in california. They are usually talking about the high cost of living and our relatively high tax base. No place is perfect and California is certainly not perfect, but it certainly offers its citizens a unique living experience that is unique to California. Having lived in many parts of the country, I can say California is definitely in it's own world and if you like it, it's hard to find a replacement.
So if you decide to do business here is it harder than other parts of the country? I do believe it is but the opportunities are boundless. The potential for customers is limitless with a state of almost 40 million.If you decide to keep your small business here you must work smart. The most important thing to do is to be knowledgeable on all the taxing authorities that affect your business.
The first organization you will deal with is the Franchise Tax Board. This is the organization that you will file your California tax returns. The 540s, LLC 568, and corporate form 100 are filed with FTB. Many states do not have income tax, but California does and its amongst the highest rates next to New York. Our top income tax rate is currently at 13.3 % and is probably going higher. Just like federal taxes you must pay as you go, which means estimating your income and sending it off quarterly.
Then next tax to stay on top of is the sales tax. This tax is collected by the CDTFA (California Department of Taxation and Fee Administration) formerly called the state board of equalization. Sales tax is an important area to stay on top of. The reason for this is that it is not your money, you are simply collecting it from your customer and giving it to the state of California. This money is not revenue and should be separated and not comingled with any business accounts. It is filed with form cdtfa-401-a electronically. What makes things more difficult is the fact that the 7.25 % is the base with cities and counties adding to that. You must keep track of where you selling your products, Los Angeles and other cities may different rates.
Business in California must file returns with the EDD (Employment Development Department). The form here is the DE 9. Here is where you as an employer pay your share of unemployment and state income taxes are withheld. These are three California taxes that you must stay on top of. They are different government agencies so you must maintain 3 different sets of files. You should spend time every month evaluating and managing all the 3 tax obligations.
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