July 1, 2025
The California Franchise Tax Board (FTB) generally conforms to the federal default classifications for income tax purposes. An LLC treated as a disregarded entity or a partnership by the IRS will be treated the same way by California. The LLC's profits and losses flow through to the members' individual California personal income tax returns (Form 540), where they are taxed at the state's graduated personal income tax rates, which can range from 1% to 13.3%.
However, this is where the simplicity ends. While conforming on the principle of income pass-through, California critically diverges by imposing its own significant entity-level taxes and fees that do not exist at the federal level or in most other states. This creates a complex and often expensive tax environment for LLCs operating within the state.
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