Ref: CA AB 85

On June 29, 2020, Governor Newsom signed into law Assembly Bill 85. There are several tax provisions in the bill, but the one most important to new business is the exemption from the $800 minimum tax for businesses starting on or after January 1, 2021 and before January 1, 2024.

This provision has been around for years for newly formed California corporations, but is new to LLC’s and LLP’s.

Planning point: If you plan on starting a new LLC/LLP near year-end, wait to do so until after January 1, 2021.

Legislative trap: The legislature wrote an “easy out” into the bill… If they don’t fund at least one dollar in the appropriated California budget (each year that the exemption is available), then this new exemption won’t be available that year.

Conclusion: Use the above planning point. Worst case is that the legislature won’t appropriate at least $1 for funding and you’ll owe the $800. Best case is that you’d owe no minimum tax for the given year.