I’m Canceling My LLC Because There Are Too Many Rules

I consider myself to be fairly competent, so when a situation arises that stumps me or I can’t figure out, I get really frustrated. And if it doesn’t make sense to me, it likely doesn’t make sense to a lot of other people, too. Here’s the story that is leading to me canceling my LLC.

The Fee That Led To My Decision

Well, for the second time this year, I got dinged for a $200 payment that I was completely unaware I owed. This time it was for a LLC annual tax payment that was considered over 12 months late. The only thing is that I paid the tax on time but was still stuck with the bill. Only 16 months after the bill was due did they come asking for their payment. For the thing I already paid.

My LLC Fee History

I created an LLC in California in December 2011 at the advice of an accountant I was working with. I did not realize until later that this meant I was on the hook for an $800 annual payment for the 2011 tax year, even though I did not receive any notice that my LLC was created until a few months into 2012.

Well, after ditching the accountant and getting a full refund and then some from him, I paid my LLC tax of $800 in March of 2012. I filed form 3522 and sent it in along with my payment.

I also paid the $800 annual tax for 2012 and in April 2013, I paid the 2013 annual tax of $800. I also filed form 568, showing that I don’t owe an additional fee for 2012.

Well guess what? I never filed that 568 form for tax year 2011. My liability was $0, I didn’t owe them a penny, but since I didn’t send in the form, they waited a year and 4 months before telling me I owed them the maximum of 12 months penalty of $18 per month, or $216. Just wonderful.

I spoke to the franchise tax board on the phone and it was up to me to pay so I am responsible for paying that $216 penalty for not filing the form saying that I didn’t owe anything.

It’s all a bit confusing but according to the rules, they are right. So I am forking over the $216 and I am canceling my LLC this year.

Where My Business Goes From Here

It has been more of a headache than anything else and I don’t want to risk getting any more penalties. I will still be able to have my individual 401(k), so there’s no real downside besides not having to look over my shoulder and wonder when my next bill will arrive.

The good news is that this will save me money. In addition to not being at risk for any fees in the future, I won’t have to pay the $800 yearly fee for having an LLC. This is pure profit for me, and can go toward future projects or can just go to my take home income from my business

11 Responses to I’m Canceling My LLC Because There Are Too Many Rules

  1. California really is horrible isn’t if? At least you didn’t get a retroactive 3% tax on a large amount of income for 2012 for prop 38 that was passed in nov 2012! Retroactive tax!

    What to do about protecting your assets now?

    Sam

  2. North Carolina’s annual fee is a whopping $125. So far no hidden fees, but after your horror story I’ll be looking out for them.

  3. No Waste says:

    Jeez, California doesn’t sound business friendly.

    I can only imagine the hell that is a phone conversation with a franchise tax board. I’m sure they only had to transfer you 18 times and put you on hold for 6 days.

  4. Only problem is your personal assets are now at risk if you were ever to be sues for a business related reason.

  5. I am in NC and it is just $125 a year with no extra fees and that is just to file your annual report to tell them that you are still in business. Yes, it is a pain, but I never had any issues before when I had another LLC for about 5 years.

    I stopped selling merchandise in California because they were ass-backwards in how they tax companies. Their codes are so ridiculous that I just couldn’t deal with it anymore.

  6. Leigh says:

    Try Nevada or Delaware. No one should start an LLC in California.

  7. That’s such a bureaucratic mess. High fees, yet disorganization. As much as I like visiting California (have family there), I think it’s not exactly a business-friendly state, and one that was probably better to live in a few decades ago.

    That said, I’m in Illinois which isn’t exactly one of the better states either. Is what it is, I’m not moving.

  8. Crystal @ Prairie Ecothrifter says:

    I completely understand your reasoning. Here in Texas, I’ve been told that the “nature of my blogging business” wouldn’t really allow me to be protected through an LLC anyway…yay. Good luck!

  9. I’m not at the point where I need to consider creating a business entity. However, I’ve actually spent a lot of time “getting ahead of myself” and putting lots of thought into how I might proceed in the future. So, this post interests me especially since I’m located in California. I’ve done a bit of research and was already aware of the $800 annual fee which is ridiculous. What a way to stifle business. Plus, you have to pay that fee even if you were to form in another state. Between the self-employment taxes, LLC fees, regular personal income taxes on online earnings, etc. you end up taking home less than half of what you earn. Ridiculous.

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