Small Business Taxes in California: What You Owe and When

Business Finance Guide · Taxes

California small business taxes: know every layer

Federal, state and local taxes, the 2026 rates and the dates that matter.

$800California minimum annual tax for LLCs and corporations

15.3%self-employment tax rate

8.75%sales tax in the City of Sacramento (Oct. 2026)

Small business taxes California owners pay come in layers: federal income tax, self-employment or payroll taxes, California income or franchise tax, sales tax and local business taxes. Knowing each layer, and its due date, is how you keep more of what you earn and avoid penalties.

Most tax trouble in a small business does not come from fraud or bad intent. It comes from surprise: an $800 bill from the Franchise Tax Board (FTB) for an LLC the owner thought was idle, a sales tax return nobody filed, or a first April tax bill that includes a full year of self-employment tax. This guide walks through each tax in the order most owners meet them, with the rates and dates published by the IRS, the FTB, the Employment Development Department (EDD) and the California Department of Tax and Fee Administration (CDTFA).

One caution before we start: this is a general guide, not tax advice for your situation. Use it to ask better questions of your CPA or enrolled agent, and to build a tax calendar you can trust.

Your business structure decides who pays income tax

The first question is not “how much?” but “who?” Sole proprietorships, partnerships, most LLCs and S corporations are pass-through businesses: the profit flows to the owners, who report it on their personal returns. A C corporation pays tax on its own profit, and shareholders pay again on dividends. Our guide to choosing a business structure in California covers the trade-offs in depth; the table below shows how each one is taxed.

Self-employment tax: the one new owners forget

When you work for an employer, Social Security and Medicare taxes come out of every paycheck and your employer pays a matching share. When you work for yourself, you pay both halves through self-employment tax. The IRS sets the rate at 15.3%: 12.4% for Social Security and 2.9% for Medicare.

You owe self-employment tax and must file Schedule SE when your net earnings from self-employment are $400 or more. For 2026, the 12.4% Social Security part stops once your combined wages and self-employment earnings reach $184,500; the 2.9% Medicare part has no cap. An additional 0.9% Medicare tax applies above $200,000 for single filers and $250,000 for married couples filing jointly.

There is some relief: you can deduct the employer-equivalent half of self-employment tax when you figure your adjusted gross income. That deduction lowers your income tax, but not the self-employment tax itself.

California’s $800 annual tax and the LLC fee

California charges most business entities a minimum tax just for existing. Every LLC that is doing business in California or organized here must pay an $800 annual tax, and it stays due even if the LLC does no business, until the LLC is canceled. Corporations pay an $800 minimum franchise tax.

• New LLCs: the first payment is due by the 15th day of the 4th month after you file with the Secretary of State. The FTB’s own example: an LLC registered on June 18 owes its first $800 by September 15. The first-year exemption that applied to tax years 2021 through 2023 has ended.
• New corporations: since January 1, 2020, newly incorporated or qualified corporations do not pay the minimum franchise tax in their first taxable year.
• Every year after: LLCs pay the $800 by the 15th day of the 4th month of the tax year, with Form FTB 3522.
• Keep the Statement of Information current: the Secretary of State charges a $250 penalty if you do not file it, and the FTB collects it.

LLCs with California income of $250,000 or more also owe an annual LLC fee on top of the $800 tax. The fee must be estimated and paid by the 15th day of the 6th month of the current tax year, using Form FTB 3536.

Sales and use tax: collected from customers, owed to the state

If you sell tangible goods in California, you generally need a seller’s permit from the CDTFA and must collect sales tax on taxable sales. The statewide base rate is 7.25%. Most cities and counties add district taxes that range from 0.10% to 2.00%, so the rate your customer pays depends on where the sale happens. In the Sacramento region, rates effective October 1, 2026 range from 7.75% to 9.25%:

Sales tax is not your money. You hold it in trust for the state, so treat it that way: move it to a separate account each week, as we suggest in our business bank account guide, and file every return on time even when you owe nothing.

Payroll taxes once you hire

Hiring your first employee adds a new set of federal and state taxes. Federally, you withhold income tax and the employee’s share of Social Security and Medicare, pay the employer share, and report them each quarter on Form 941, due the last day of the month after the quarter ends.

In California, you must register with the EDD within 15 days once you pay more than $100 in wages in a calendar quarter. The EDD then collects four payroll taxes:

Unemployment Insurance (UI) and the Employment Training Tax (ETT) are paid by the employer. New employers keep the 3.4% UI rate for two to three years, after which the rate depends partly on how much the account has paid in benefits. State Disability Insurance (SDI) and California personal income tax are withheld from employees’ pay, based on the federal Form W-4 and the state Form DE 4.

Local business taxes in the Sacramento region

Cities add their own layer. The City of Sacramento does not issue a general business license; instead, Sacramento City Code Chapter 3.08 requires every business that operates in the city to hold a Business Operations Tax certificate and renew it every year. For sales and service businesses the tax is based on annual gross receipts. Unincorporated Sacramento County charges a license fee that is not based on revenue. Our Sacramento business license guide explains who needs which one.

A tax calendar for a calendar-year business

Keep records that make tax time simple

Good records turn tax season from a scramble into a review. Keep a monthly profit and loss statement and balance sheet, save receipts digitally, record mileage as you drive and reconcile every bank and card account each month. A CPA who receives clean books spends their time on planning instead of cleanup, and that usually costs you less.

Common mistakes with California small business taxes

• Forgetting the $800. An LLC owes the annual tax every year it exists, even with no sales.
• Spending the sales tax. Collected sales tax belongs to the state; keep it in a separate account.
• Skipping estimated payments. A first-year owner can face a full year of income and self-employment tax at once, plus a penalty.
• Paying people without registering. Once wages pass $100 in a quarter, EDD registration is due within 15 days.
• Missing the Statement of Information. It carries a $250 penalty and can lead to suspension.

Key terms

• Pass-through business: a business whose profit is taxed on the owners’ personal returns.
• Self-employment tax: Social Security and Medicare taxes paid by people who work for themselves.
• Annual tax (minimum franchise tax): California’s $800 yearly tax on LLCs and corporations.
• District tax: a local sales tax added on top of California’s 7.25% statewide rate.
• Seller’s permit: the CDTFA permit that lets you sell taxable goods and collect sales tax.

The bottom line: California small business taxes are manageable when you see all the layers at once. Know your structure, set aside money for income, self-employment and sales tax every week, register with the EDD before your first payroll, and put every due date on one calendar.

Free help in the Sacramento region

You do not have to work through these decisions alone. SCORE Sacramento pairs owners with volunteer mentors, many of them retired executives, bankers and accountants, at no cost. The Sacramento Valley Small Business Development Center offers free one-on-one advising on financing, budgeting and financial statements. The SBA’s Sacramento District Office can explain loan programs and connect you with lenders, and community lenders such as California Capital and Opening Doors serve owners who need smaller loans or extra support. Browse our Business Resources and the free business help guide for more.

Frequently asked questions

Sources

• IRS: Self-employment tax (Social Security and Medicare taxes)
• IRS: Instructions for Form 1120 (21% corporate rate)
• IRS: Publication 509 (2026), Tax Calendars
• California Franchise Tax Board: Limited liability company (annual tax, LLC fee, due dates)
• California Franchise Tax Board: Corporations (minimum franchise tax, first-year exception)
• California Franchise Tax Board: Business tax rates
• California Franchise Tax Board: 2025 California tax rate schedules
• CDTFA: California City and County Sales and Use Tax Rates (effective Oct. 1, 2026)
• EDD: Step 1, Register as an Employer
• EDD: Contribution Rates, Withholding Schedules, and Meals and Lodging Values
• City of Sacramento: Business Operations Tax