A California S-Corporation lets business owners save thousands of dollars per year in self-employment taxes compared to an LLC. It is the ideal structure when your business already generates $80,000+ in annual profit. Form your S-Corp with California-valid documents, bilingual, without an attorney, from $399.
An S-Corp makes sense when: your business generates over $80,000-$100,000 a year in net profit, you personally take a "reasonable salary" from the business, you want to save the 15.3% Self-Employment tax on distributions (S-Corps only pay that tax on salary, not on additional profits), you have an LLC that is paying too much in taxes, or you are forming a professional business (consulting, marketing, technology). NOT recommended for small businesses under $50k/year — tax savings do not offset administrative costs.
In California, an S-Corp pays 1.5% on net income (minimum $800 annual). Federal S-Corp election is NOT automatic in California — California taxes S-Corps as regular corporations at 1.5%. Even so, the combination of federal Self-Employment Tax savings + the lower 1.5% state rate vs. the 8.84% a regular C-Corp would pay makes S-Corp attractive. Every S-Corp must have Bylaws (not filed with state but must exist) and must file Form 100S annually.
S-Corp generally makes sense when your net profit exceeds $80,000/year. Below that, administrative costs (payroll processor, accountant for 1120-S) consume the tax savings.
Yes — this is CRITICAL. The IRS requires S-Corp owners working in the business to receive a "reasonable salary" before taking distributions. Without payroll, the IRS can reclassify all distributions as salary subject to Self-Employment Tax.
What you would pay an outside employee to do the same work. For a consultant charging $100/hour, your salary should be market-rate, not $20,000/year while taking $200,000 in distributions.
Yes. Your LLC can "elect" to be taxed as S-Corp by filing Form 2553 with the IRS, without changing legal structure. We recommend this path when you reach $80k+ in profit.
$399 with Multi Servicios 360 vs. $2,000-$5,000 with an attorney. Plus $70 state fee + $800 initial franchise tax.
Multi Servicios 360 is a self-help legal document preparation platform. We are not a law firm and do not provide legal advice.
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