Year-End Business Dissolution Tax Planning in California: What You Must Know Before Closing Your Company

Dissolving a business in California has always required careful timing to avoid the additional $800 annual franchise tax, but the rules have changed — and smart planning can now save business owners money, stress, and unexpected tax bills.

Under recent updates, a business no longer must dissolve before December 31 to avoid the $800 minimum franchise tax for the following year. However, the Franchise Tax Board still requires very specific steps for a corporation, LLC, LP, or LLP to avoid additional tax liabilities.

At Velin & Associates, Inc., we are already guiding clients — including YouTubers, Amazon sellers, Shopify stores, doctors, dentists, filmmakers, and high-net-worth individuals — through end-of-year dissolution planning to ensure they close cleanly, correctly, and without surprise California tax assessments.

New Rule: You Don’t Need to Dissolve Before December 31 — But Timing Still Matters

California will not assess the $800 tax for the next year if all of the following are true:

✔ The business files a final tax return on or before the extended due date

✔ The business stops doing business in California after the final taxable year

✔ The business files dissolution/surrender/cancellation documents with the Secretary of State within 12 months of the final return filing date

To properly close:

• File the final return
• Check the “Final Return” box
• Write FINAL at the top of page 1
• Stop conducting any business activity
• File dissolution paperwork within 12 months

Example:

If “XYZ Corporation” closes in November 2025, files its final 2025 tax return by March 16, 2026, and stops doing business after November 2025 — it will not owe the $800 tax for 2026 even if it files dissolution paperwork as late as November 2026.

Example:

A Shopify client planned to close their online boutique on December 20, 2025.

We advised them:

• Cease business activity after December 20
• File their final 2025 return early in 2026
• Pay all bookkeeping and dissolution-related fees before December 31
• Submit Secretary of State cancellation within 12 months

Result:
They avoided the 2026 $800 tax and maximized their final-year deductions

Example:

A YouTube creator no longer needed their production LLC.
We ensured:

• Final equipment purchases and editing costs were paid before year-end
• The final California return was filed with “FINAL” noted
• They stopped monetized activity under the LLC after the final taxable year

Result:
No additional $800 tax and no lost deductions due to unpaid expenses rolling into the next year.

Example:

A doctor transitioning to employment wanted to dissolve their S-Corp medical practice.

We recommended:

• Pay all legal and final bookkeeping fees in the dissolution year
• File the final return as soon as year-end books were reconciled
• File dissolution documents promptly

Result:
The doctor avoided losing deductions (California disallows accruing unpaid expenses) and avoided the next year’s $800 franchise tax.

Example:

An Amazon FBA seller stopped operations in September.

Because they dissolved before filing the final return:

• Their tax year ended the month they dissolved
• Their final S-Corp return deadline was moved up to July 15, not September 15
• We front-loaded all deductible expenses to the final tax year

Result:
They avoided a costly penalty for misunderstanding the short-year deadline.

Why Paying Final-Year Expenses Early Is Critical

When a business dissolves:

California does not allow cash-basis businesses to deduct expenses paid after the final taxable year.

This includes:

• Tax preparation fees
• Legal cleanup costs
• Accountant fees
• Website/system shut-down costs

If paid in the following year, these expenses can become nondeductible personal expenses, providing zero tax benefit.

At Velin & Associates, we always recommend:

✔ Pay tax prep and dissolution-related expenses before December 31
✔ Accelerate any unavoidable final costs into the last business year

This provides maximum deduction value and ensures clean final-year accounting.

Understanding Short-Year Filing Deadlines

If an entity formally dissolves before filing its final return:

• The tax year ends in the month the entity dissolved
• Filing deadlines shift earlier

Example:

A calendar-year S-Corp dissolves in October →
Extended due date becomes July 15, not September 15.

Important:

Dissolving in December does not create a short year.

We carefully plan dissolution timing for clients in:

• Film and entertainment (CPA for Filmmakers)
• Dental offices (Dentist CPA | Dental Business CPA)
• High-net-worth individuals with multiple LLCs
• Ecommerce and creators with irregular revenue cycles

Why Careful Dissolution Planning Saves Thousands

Poorly executed dissolutions often result in:

❌ Additional $800 franchise tax charges
❌ Missed deductions
❌ Incorrect short-year filings
❌ IRS or FTB notices
❌ Penalties for filing late final returns
❌ Double taxation if revenue is reported in the wrong year

A 30-minute consultation often saves clients hundreds to thousands of dollars.

Closing a Business Soon? Let Us Help You Avoid the $800 Mistake.

At Velin & Associates, Inc., we specialize in closing California entities correctly — especially for creators, medical professionals, ecommerce businesses, and high-net-worth individuals.

Whether you’re dissolving a YouTube LLC, winding down a Shopify store, ending an Amazon business, or closing a medical or dental practice entity — we ensure a smooth, compliant, tax-efficient exit.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

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