California Corner: California’s 15-Day Rule for New Businesses
As we approach the end of the year, it’s a good time to discuss the 15-day rule with your clients. Understanding the 15-day rule and realizing the rule only applies to short taxable years that are 15 days or fewer, is very important for your client’s decision about when to register their business entity with the California Secretary of State.
The 15-day rule states that business entities (limited partnerships, limited liability partnerships, limited liability companies, and corporations) with a taxable year of 15 days or fewer are not required to file a tax return or pay the $800 annual/minimum tax, if they meet both of the following:
- They did no business in California during the taxable year
- Their taxable year is 15 days or less
For example, if a business entity who files on a calendar year basis is formed on or after December 17, and does no business for the remainder of the year, then it may not have to file a tax return and/or pay the $800 annual/minimum tax for that short taxable year.
Additionally, if the business entity meets the 15-day rule and is not required to file a tax return, this short period is not considered the first taxable year. The first taxable year will be the following year.
Example: If Tax, Inc., filing on a calendar year basis, incorporates on December 20, 2024, and does not conduct business from December 20, 2024, through December 31, 2024, then it meets the 15-day rule and is not required to file a 2024 tax return. The corporation’s first taxable year will start on January 1, 2025. That means Tax, Inc. will not owe the $800 minimum tax for 2024 or 2025.
For more information on the 15-day rule see Limited Liability Company Filing Information Publication and Guide for Corporations Starting Business in California.