California LLC for Freelancers — Is the $800 Worth It?
California's $800 annual franchise tax is the critical question for freelancers. Unlike Texas ($300 one-time, $0/year) or Wyoming ($100, $60/year), California demands $800/year indefinitely. For most freelancers earning $30K+: the liability protection plus S-corp tax savings justify it. See our CA LLC guide.
The Break-Even Analysis
| Annual Profit | S-Corp SE Tax Savings | Less: CA $800 + $2K payroll/CPA | Net Benefit |
|---|---|---|---|
| Under $30K | ~$0 (no S-corp) | -$800 (just franchise tax) | Negative (but liability protection has value) |
| $30K-$60K | $0-$3,000 | -$800 | Near break-even |
| $80K+ | $8,000-$12,000 | -$2,800 | $5,200-$9,200 positive |
| $150K+ | $12,000-$18,000 | -$3,000 | $9,000-$15,000 positive |
Conclusion: At $80K+ annual profit, the LLC + S-corp combination saves significantly more than the $800 franchise tax costs.
California-Specific Freelancer Considerations
- AB 5 (Worker classification): California's strict independent contractor law (ABC test) means your clients must be comfortable treating you as a contractor. Having an LLC strengthens your independent contractor status.
- City business tax: Most CA cities require a business tax certificate ($30-$500+ annually) in addition to state fees.
- No escape for CA residents: If you live in CA, you owe CA income tax (up to 13.3%) on worldwide income regardless of where clients are located.
FAQ
Ready to get started?
Get StartedShould I wait until I'm profitable to form?
If liability risk exists (client work, deliverables), form now — the $800 is the cost of protection. If testing a low-risk idea: start as sole proprietor, form once revenue consistently exceeds $20K-$30K/year.
Is there a first-year franchise tax exemption for freelancers?
The first-year exemption under AB 85 applied to LLCs formed in 2021-2023. For LLCs formed in 2024 or later, the $800 franchise tax is owed starting in the first taxable year. Budget for this from day one.