The $800 stops
A properly cancelled entity stops accruing the minimum franchise tax. An abandoned one does not, for as long as it sits there.
Business
The entity you have is not the entity you will always need
Moving from one structure to another, or closing one down for good — done in the order California and the IRS expect, so nothing keeps billing you afterwards.
A structure that was right at $60,000 of profit is often wrong at $250,000, and a partnership that made sense with two people rarely survives the third leaving. Changing it is not difficult, but the order matters: the state filing, the federal election, the EIN, the payroll accounts and the final return each depend on the one before, and doing them out of sequence creates a year of mismatched notices.
Closing is where we see the most damage. An owner stops trading, closes the bank account, and assumes the entity went away with the business. It did not. Until the entity is formally dissolved and cancelled with the Secretary of State and its final return is filed, California keeps expecting the $800 minimum franchise tax every year — and the balance is still there years later, with interest and penalties on top.
Scope
What’s included
Conversion analysis
Sole proprietor to LLC, LLC to S-corporation, partnership to corporation — the tax consequences of each route, priced out before you commit.
Statutory conversion or merger
California allows an entity to convert directly in most cases; where it does not, we use a merger into a new entity instead. We pick the route and file it.
EIN, elections and accounts
Whether a new EIN is required, which elections carry over, and how the EDD and CDTFA accounts move with the new entity.
Dissolution and cancellation filings
Certificate of Dissolution and Certificate of Cancellation prepared and filed with the California Secretary of State, tracked to confirmation.
Final returns, marked final
Federal and California returns with the final-return box actually ticked, final payroll returns, and the last W-2s and 1099s issued.
Closing the IRS business account
An EIN is never cancelled — the business account behind it is closed by written request, and we send it with the final returns.
Outcome
Why it matters
No orphan accounts
Payroll, seller’s permit and city accounts get closed too, so no agency keeps expecting a return from a business that no longer exists.
Clean personal exposure
Payroll and sales tax balances can follow the owner personally. We identify them before the entity closes, not after.
Process
How it works
-
Where you are now
Current entity, filings made and missed, open agency accounts, and any balance already owed.
-
Choose the route
Convert, merge or close, with the tax consequence and the cost of each written out plainly.
-
File in sequence
State filings first, then federal elections and EIN steps, then the agency accounts — each confirmed before the next.
-
Close the file
Final returns filed, confirmations collected, and a written record of what was closed and when.
Suited to
Who this is for
- Sole proprietors ready to become an LLC
- LLCs whose profit now justifies S-corporation treatment
- Partnerships losing or adding a partner
- Owners who stopped trading but never dissolved the entity
- Anyone still receiving FTB notices for a closed business
FAQ
Questions
Because closing a business and dissolving an entity are two different acts. Stopping work, closing the bank account and letting the website lapse do nothing to the registration — the LLC or corporation stays on file with the Secretary of State, and California keeps assessing the $800 annual minimum against it every year, plus penalties and interest for the returns that were never filed. The fix is to file the outstanding returns, formally dissolve and cancel, and then work the balance down. It is a common situation and it does resolve.
It depends on what changes. A sole proprietor forming an LLC usually needs one. An LLC electing S-corporation treatment generally keeps the EIN it already has, because the entity has not changed — only how it is taxed. A partnership incorporating normally needs a new one. Getting this wrong means returns filed under a number the IRS has matched to a different entity, which is slow to unpick, so we confirm it before anything is filed.
Often not, but it can be. Many conversions are treated as tax-free contributions of assets to the new entity. It gets more complicated where there are liabilities exceeding basis, appreciated assets, or a partnership incorporating — those are the situations that produce a surprise gain. We look at the balance sheet before choosing the route, precisely so the conversion does not create a bill.
Often needed alongside this
Other services
-
Business Formation & Entity Selection
The structure you choose in week one decides what you pay in tax for years. We pick it with the numbers in front of us, then file everything that has to be filed.
-
California Franchise Tax Compliance
The $800 minimum, the LLC fee, the vouchers that are easy to forget and the returns they attach to — tracked, paid on schedule, and put right when they were not.
-
Business Tax Returns & Compliance
K-1s flow straight through to the owners without a hand-off — which removes the single most common source of filing errors in business.
Let’s find out what you should actually be paying.
Thirty minutes with an Enrolled Agent, at no charge. Bring last year’s return and we will tell you plainly what we would do differently — and what it would cost.