Storm postponements delay June 15 payments

In a normal year, June 15 is an important payment deadline for LLCs and other passthrough entities, but 2023 has been anything but normal for most California taxpayers because of the filing and payment postponements related to various winter storms.

Any taxpayer who resides in, whose principal place of business is located in, or whose tax professional is in, any of the California counties affected by the winter storms has until October 16, 2023, to file and pay most types of federal and California tax obligations. Currently, this postponement applies to all California counties except for Lassen and Shasta counties.

The postponement applies to all payments scheduled for or payments due with tax returns that were originally due on or after the disaster beginning date for the affected county and before October 16, 2023. This means interest and penalties will not be imposed on these payments because the original due date is now considered October 16, 2023. (The postponement deadline for Modoc County is August 15, 2023.) This includes, but is not limited to, the following payments that would normally be due on June 15:

The 2023 prepayment of the passthrough entity elective tax; and

The 2023 estimated LLC gross receipts fee.

Under California’s passthrough entity elective tax provisions, a qualified S corporation, partnership, or LLC taxed as a partnership or S corporation can elect to pay a passthrough entity tax equal to 9.3% of its qualified net income. This tax decreases the federal net income included on the owners’ K-1 as a work around to the $10,000 state and local tax limitation. California also allows the entity’s consenting individual, estate, trust, and certain single member LLC owners to claim a credit on their California return of up to 100% of the tax paid on their behalf.

For the 2022 through 2025 taxable years, to be eligible to make the election, the passthrough entity is required to make a prepayment of the tax by June 15 of the current year equal to the greater of:

50% of the elective tax for the prior year; or

$1,000.

There are no exceptions to the 50% of prior-year tax requirement for the June 15 payment. So if a taxpayer underpays the 50% amount because they did not correctly estimate the amount that would be actually due, they are ineligible. This is true even if the amount underpaid is a de minimis amount. The FTB has no authority to change this 50% requirement, and there is currently no legislation pending to remove this requirement.

However, this year, taxpayers eligible for storm-related disaster postponements have until October 16, 2023, to make the 2023 prepayment. This is a huge benefit because the taxpayer’s return for the tax year is also due October 16, meaning that the passthrough entity should be able to accurately determine the amount of tax due and will be far less likely to underestimate the 50% amount due for the prepayment.

Regarding the postponement of the estimated LLC gross receipts fee, normally, if an LLC doesn’t pay by June 15 (or if the estimated fee is less than the amount actually owed), a 10% underpayment penalty is assessed. For taxpayers in affected counties, the 2023 gross receipts fee can be paid by October 16, giving these entities more breathing room to estimate the fee.

If you want to learn how these storm postponements effect your particular circumstances contact us at (562) 281-1040.