Jake Lawson here. I’ve watched thousands of entrepreneurs get blindsided by California’s infamous $800 annual franchise tax. For a few blessed years, Assembly Bill 85 gave new LLCs a break. Those days are over. Here’s the straight story on what changed and what it means for your wallet.
If you’re reading outdated articles claiming California LLCs get their first year free—stop. That ship has sailed. AB 85 expired on December 31, 2023, and California went right back to its old ways: charging every LLC $800 per year, starting from day one.
Let me break down exactly what this means for you, depending on when you formed your LLC.
The AB 85 Timeline: Who Got Lucky and Who Didn’t
Assembly Bill 85 was California’s temporary gift to entrepreneurs. From 2020 through 2023, new California LLCs didn’t pay the annual franchise tax in their first year. It was too good to last.
If you formed your California LLC before December 31, 2023: Congratulations—you caught the tail end of AB 85. Your first $800 payment wasn’t due until 2025, and from then on, you’ll pay annually every April 15th.
If you formed your California LLC after January 1, 2024: Welcome to the new reality. You pay $800 in your first year, due on the 15th day of the 4th month after formation. Then you pay $800 every April 15th thereafter.
How the New Payment Schedule Works
Here’s a real-world example that’ll make this crystal clear:
Let’s say you formed your LLC on June 1, 2025:
- First $800 payment: Due September 15, 2025 (covers 2025 tax year)
- Second $800 payment: Due April 15, 2026 (covers 2026 tax year)
- Every subsequent payment: Due April 15th annually
Jake’s Warning: Notice how close those first two payments are? If you form your LLC late in the year, you could end up paying $1,600 within a few months. There are strategies to avoid this double-hit, but only if you haven’t formed your LLC yet.
Can You Avoid the $800 Annual Tax?
Short answer: No.
Long answer: Still no, but let me explain why people keep asking this question.
Every California LLC pays $800 annually, period. Revenue doesn’t matter—you could make $0 or $10 million, and you still owe $800. Think of it as California’s “membership fee” for the privilege of having an LLC in the state.
Beware of Outdated Information: If you see websites still promoting the AB 85 exemption, they’re either outdated or trying to mislead you. I’ve reviewed over 20 formation services, and some are still pushing this expired benefit to make California LLCs seem more attractive.
The Back-to-Back Payment Problem (And How to Avoid It)
Here’s where timing matters. If you form your LLC late in the year, you might face what I call the “California Double Whammy”—paying $800 for your formation year, then another $800 just a few months later in April.
For example, form an LLC in October 2025:
- First payment due: January 15, 2026 ($800)
- Second payment due: April 15, 2026 ($800)
That’s $1,600 in four months. Ouch.
The Solution: Strategic timing. If you’re planning to form a California LLC and it’s getting late in the year, consider waiting until January or using specific formation timing strategies. But this only works if you haven’t formed yet—you can’t undo an existing LLC to fix this.
The Additional Estimated Fee Trap
Here’s something that catches successful LLCs off guard: if your LLC will generate over $250,000 in total revenue, you owe an additional “estimated fee” on top of the $800 base amount.
The estimated fee starts at $900 (for revenue between $250,000-$499,999) and goes up from there. You file this on Form 3536, and yes, you need to estimate your revenue and pay accordingly.
Jake’s Reality Check: This applies even in your first year if you’re projecting over $250K in revenue. California doesn’t care if you’re new—if you’re making money, they want their cut.
What If Your LLC Makes No Money?
Doesn’t matter. Zero revenue, zero profit, zero business activity—you still owe $800.
I’ve guided entrepreneurs who formed LLCs and never used them. They still had to pay the annual tax or face penalties and interest. California’s Franchise Tax Board doesn’t negotiate on this.
The Dissolution Escape Route
The only way to stop paying the annual tax is to properly dissolve your LLC. But here’s the catch: if your LLC existed for any part of a tax year, you owe the full $800 for that year.
Form your LLC in December and dissolve it in January? You owe $800 for both years.
Important: Don’t just abandon your LLC thinking the problem will go away. California will keep charging annual taxes, late fees, and penalties. These can add up fast, and the Franchise Tax Board is notoriously aggressive about collections.
Getting Help with California Franchise Tax Issues
The California Franchise Tax Board (FTB) actually has decent customer service, which is more than I can say for most state agencies:
- Phone: 800-852-5711 (Monday-Friday, 8am-5pm Pacific)
- They offer callback options instead of making you wait on hold
- Live chat available on their website
- Wait times are posted online so you know what you’re getting into
Pro Tip: Call early in the morning or later in the afternoon for shorter wait times. Mid-day calls can take forever.
Should You Still Form a California LLC?
Despite the $800 annual tax, California LLCs still make sense for many businesses. The state offers:
- Strong liability protection
- Flexible management structure
- No publication requirements (unlike New York)
- Business-friendly courts and legal precedent
But don’t kid yourself about the costs. Budget for the $800 annual tax from day one, and factor it into your business planning.
Common AB 85 Myths Debunked
Myth: “Some formation services can still get you the AB 85 exemption.”
Reality: Impossible. The law expired. Anyone claiming otherwise is lying.
Myth: “You can get a refund if you paid in 2023 but didn’t have to.”
Reality: You might be able to account for overpayment on your tax return, but you’ll need an accountant to sort it out.
Myth: “The exemption might come back.”
Reality: California’s budget situation makes this unlikely. Don’t plan your business around wishful thinking.
What About Out-of-State LLCs Doing Business in California?
If you have a Wyoming, Delaware, or other state LLC but conduct business in California, you’ll likely need to register as a “foreign LLC” in California. Guess what that means? You get to pay the $800 annual tax anyway.
California defines “doing business” broadly. Having employees, clients, or significant activity in California often triggers the requirement to register and pay the tax.
The Bottom Line
California’s brief experiment with AB 85 is over. If you’re forming a California LLC today, budget for $800 annually from year one. Factor this into your business plan, and don’t let anyone tell you there’s a way around it.
The good news? If you can handle California’s tax burden, you’re operating in one of the world’s largest economies with access to incredible opportunities. Just know what you’re signing up for.
Considering a California LLC? Make sure you understand all the costs upfront. The $800 annual tax is just the beginning—there are also filing fees, registered agent fees, and potential additional taxes based on your revenue.
Don’t let sticker shock stop you from starting your business, but don’t get blindsided either. Plan accordingly, budget properly, and focus on building a business that can easily handle California’s fees.
Jake Lawson has guided over 1,200 entrepreneurs through U.S. business formation, including hundreds of California LLCs. His independent reviews and state-by-state comparisons help founders make informed decisions without the sales pitch. Connect with Jake at llciyo.com for unbiased LLC formation guidance.