By Jake Lawson, LLC Formation Strategist
California’s $800 annual franchise tax is painful enough on its own, but getting hit with back-to-back payments totaling $1,600 in just a few months? That’s a punch to the gut that can seriously damage your cash flow.
After helping over 1,200 entrepreneurs navigate state requirements, I’ve seen too many California business owners get blindsided by this expensive timing trap. The good news? It’s completely avoidable if you understand California’s quirky franchise tax calendar and plan your LLC formation timing strategically.
Let me show you exactly how California’s franchise tax timing works and how to save yourself $800 by forming your LLC at the right time.
The California Franchise Tax Reality
Before we dive into the strategy, let’s establish the facts:
Every California LLC pays $800 annually—no exceptions, regardless of income or business activity.
The timing creates potential double payments if you form your LLC late in the year.
There’s no first-year exemption anymore (Assembly Bill 85 expired at the end of 2023).
You cannot avoid this tax by forming in another state if you’re doing business in California.
Understanding California’s Confusing Payment Schedule
California’s franchise tax payment schedule is unnecessarily complicated, which is exactly why so many entrepreneurs get caught off guard.
First Payment Due Date
Your first $800 payment is due on “the 15th day of the 4th month after your LLC is approved.”
Let me translate this bureaucratic riddle:
- The month your LLC is approved = Month 1
- Count forward 3 more months to find Month 4
- Payment due on the 15th of Month 4
Second Payment Due Date
Your second $800 payment (and all subsequent payments) are due April 15th every year.
The Back-to-Back Payment Trap: Real Examples
Let me show you exactly how this timing trap works with real examples:
Scenario 1: October Formation (The Expensive Mistake)
- LLC approved: October 15, 2025
- First payment due: January 15, 2026 ($800 for 2025 tax year)
- Second payment due: April 15, 2026 ($800 for 2026 tax year)
- Total paid in 4 months: $1,600
Scenario 2: November Formation (Even Worse)
- LLC approved: November 20, 2025
- First payment due: February 15, 2026 ($800 for 2025 tax year)
- Second payment due: April 15, 2026 ($800 for 2026 tax year)
- Total paid in 3 months: $1,600
Scenario 3: December Formation (The Worst Case)
- LLC approved: December 10, 2025
- First payment due: March 15, 2026 ($800 for 2025 tax year)
- Second payment due: April 15, 2026 ($800 for 2026 tax year)
- Total paid in 2 months: $1,600
The pattern: The later in the year you form your LLC, the closer together your first two $800 payments become.
The Smart Strategy: Avoid Late-Year Formation
The solution is simple: Don’t form your California LLC in October, November, or December unless you absolutely need it operational immediately.
Better Timing Options
Option 1: Wait Until January
- LLC approved: January 15, 2026
- First payment due: April 15, 2026 ($800 for 2026 tax year)
- Second payment due: April 15, 2027 ($800 for 2027 tax year)
- Result: Full year between payments, saving you $800 in cash flow
Option 2: Use a Future File Date If you need to file your paperwork now but don’t need the LLC operational until next year:
- File your LLC formation documents in December 2025
- Set the effective date for January 1, 2026
- First payment due April 15, 2026
- No back-to-back payments
How to Use California’s Future File Date
California allows you to specify when your LLC becomes effective, up to 90 days in the future. Here’s how:
Online Filing
- Complete your LLC formation online
- Look for the “File Date” or “Effective Date” section
- Select January 1st of the following year
- Submit your filing
Mail Filing
You have two options:
Option A: Wait to Mail
- Prepare your Articles of Organization
- Wait until mid-December to mail them
- They’ll be processed in the new year
Option B: Use Future File Date Attachment
- Complete your Articles of Organization
- Include a Future File Date Attachment specifying January 1st
- Mail immediately
My recommendation: Online filing with future date is the most reliable method.
The California 15-Day Rule: A Small Loophole
California has an obscure rule that can save you money if you’re forming very late in December:
The rule: If your LLC is approved on or after December 17th, it’s considered to not exist for that tax year due to the “short year” rule.
What this means:
- LLC approved December 17-31: No franchise tax owed for that year
- First payment due the following April 15th
- Saves you one $800 payment
The catch: This only works if your LLC is approved on December 17th or later. If it’s approved December 16th or earlier, you still owe for both years.
My advice: Don’t rely on this rule for planning. The future file date strategy is much more reliable.
What About Forming in Another State?
I get this question constantly: “Can I just form my LLC in Nevada or Wyoming to avoid California’s franchise tax?”
Short answer: No, and it’ll probably cost you more.
Here’s why:
- If you’re doing business in California, you owe the franchise tax regardless of where your LLC is formed
- You’ll need to register as a foreign LLC in California (additional fees)
- You’ll pay formation fees in two states
- You’ll have compliance requirements in two states
- The IRS and California will still tax your California business income
Bottom line: If you’re doing business in California, form your LLC in California and time it strategically.
Current Status: No First-Year Exemption
Important update: Assembly Bill 85, which provided a first-year franchise tax exemption, expired at the end of 2023. There is currently no first-year exemption for California LLCs formed in 2024 or later.
This makes timing your formation even more critical since you’ll owe franchise tax starting from your first year.
Step-by-Step Strategy Implementation
Here’s exactly how to implement this money-saving strategy:
If It’s Currently January-September
Action: Form your LLC now if you’re ready Result: Normal payment schedule with full year between payments
If It’s Currently October-November
Options:
- Wait until January if you don’t need the LLC immediately
- Use future file date of January 1st if you want to file paperwork now
- Form immediately only if you need to start business operations right away
If It’s Currently December 1-16
Recommended action: Wait until January or use January 1st future file date
Risk: Forming now creates maximum back-to-back payment burden
If It’s Currently December 17-31
Options:
- Form immediately to potentially benefit from the 15-day rule
- Wait until January to guarantee no back-to-back payments
- Use future file date for January 1st
The Business Case for Waiting
Let me put this in business terms: Saving $800 by timing your LLC formation strategically gives you:
- More working capital for business operations
- Better cash flow management in your first year
- Reduced financial pressure during startup phase
- $800 available for marketing, inventory, or equipment
For a startup business, $800 can be the difference between success and failure in those critical early months.
When You Should Form Immediately (Despite the Cost)
Sometimes the back-to-back payments are worth it:
Time-sensitive opportunities:
- Contract deadlines requiring LLC structure
- Investment opportunities with timing requirements
- Licensing requirements with specific deadlines
Tax advantages:
- Significant business expenses you need to deduct in the current year
- Tax planning strategies that require LLC structure before year-end
Liability concerns:
- Immediate need for liability protection
- High-risk business activities starting immediately
Common Mistakes to Avoid
After working with hundreds of California entrepreneurs, here are the mistakes I see most often:
Mistake 1: Forming Without Understanding the Calendar
The problem: Not realizing that October-December formation creates back-to-back payments The cost: $800 in unnecessary cash flow burden The solution: Always check the payment calendar before forming
Mistake 2: Relying on the 15-Day Rule
The problem: Counting on approval after December 17th The risk: If approved December 16th or earlier, you still pay twice The solution: Use future file date strategy instead
Mistake 3: Thinking Other States Will Save Money
The problem: Forming in Nevada/Wyoming to avoid California taxes The reality: You’ll pay more in total fees and still owe California franchise tax The solution: Form in California with strategic timing
Mistake 4: Not Planning for Cash Flow Impact
The problem: Not budgeting for potential $1,600 in early payments The consequence: Cash flow crisis in early business operations The solution: Factor franchise tax timing into business planning
Record Keeping and Compliance
Regardless of when you form your LLC, you’ll need to stay compliant:
Required Filings
- Form 568 (LLC Return of Income): Due every year regardless of income
- Statement of Information: Due every two years
- Franchise tax payments: $800 annually by April 15th (after first payment)
Important Dates to Track
- LLC formation/effective date
- First franchise tax payment due date
- April 15th annual deadline for subsequent payments
- Statement of Information due dates
The Bottom Line on California Franchise Tax Timing
California’s $800 annual franchise tax is unavoidable if you’re doing business in the state, but the timing of your payments is completely within your control. By understanding the payment schedule and using strategic formation timing, you can avoid the cash flow nightmare of back-to-back $800 payments.
Key strategies:
- Avoid October-December formation unless absolutely necessary
- Use future file dates to defer effective date to January
- Plan for the ongoing $800 annual expense in your business budget
- Don’t try to avoid the tax by forming in other states
My final advice: The $800 saved by strategic timing can be reinvested in your business where it can generate returns, rather than being tied up in premature tax payments. Take the time to plan your formation timing—your cash flow will thank you.
Ready to form your California LLC with optimal timing? Make sure you’re working with a formation service that understands California’s unique requirements and can help you implement the right timing strategy. I’ve reviewed all the major providers—check out my detailed service comparisons to find the best fit for your California LLC needs.
This guide is for informational purposes only and doesn’t constitute tax advice. California tax laws can change, and every business situation is unique. Always verify current requirements with the California Franchise Tax Board and consult with qualified tax professionals for guidance specific to your situation.
About Jake Lawson: With over 15 years of experience in LLC formation and tax strategy, Jake has helped more than 1,200 entrepreneurs navigate complex state requirements and save money through strategic timing and planning. He believes in empowering business owners with the knowledge to make smart decisions about formation timing and compliance.