What taxes apply to a new small business?

Taxes Applicable to New Small Businesses in California

Starting a small business in California involves understanding and managing several tax obligations. Proper tax planning supports compliance and smooth operations.

Key Taxes for New Small Businesses

• California State Income Tax: Businesses operating as sole proprietorships, partnerships, LLCs, or corporations must pay state income tax on their earnings. The rates and filing requirements depend on the business structure.
• California Franchise Tax: Most businesses registered or operating in California must pay an annual minimum franchise tax of $800. This applies to corporations, LLCs, and limited partnerships.
• Sales and Use Tax: If your business sells tangible goods, you must collect and remit sales tax. The base state sales tax rate is 7.25%, but local districts may add additional rates. Use tax applies to goods purchased out-of-state for use in California.
• Employment Taxes: If you hire employees, you are responsible for withholding federal and state income taxes, Social Security, Medicare, and paying state unemployment insurance (SUI) and employment training tax (ETT).
• Federal Taxes: In addition to state taxes, federal income tax and payroll taxes apply. Businesses must register with the IRS and obtain an Employer Identification Number (EIN).

Operational Considerations

• Registration and Reporting: Register your business with the California Department of Tax and Fee Administration (CDTFA) to handle sales tax and other tax permits.
• Recordkeeping: Maintain detailed records of all income, expenses, payroll, and tax filings to simplify reporting and audits.
• Automation: Use accounting software to automate tax calculations, payroll, and reporting deadlines.
• Compliance: Stay updated on tax rate changes and filing deadlines to avoid penalties. As of 2026, tax rates and requirements may change, so regular review is essential.
• Consultation: While this guidance is operational, consider consulting a tax professional for complex situations or to optimize tax strategy.