California LLC Tax Elections — S-Corp Considerations
The S-corp election saves federal self-employment tax for California LLC owners, but California adds a unique wrinkle: S-corps pay a 1.5% net income tax (minimum $800) instead of the flat $800 franchise tax. This means the California-level tax can increase while federal taxes decrease. For the complete picture, see our CA LLC tax guide.
S-Corp in California — The Trade-Off
Federal benefit: Save 15.3% self-employment tax on distributions (same as everywhere).
California complication: Under the California Revenue and Taxation Code, California S-corporations pay a 1.5% tax on net income with an $800 minimum. This replaces the $800 flat franchise tax.
| Net Profit | LLC Franchise Tax | S-Corp CA Tax (1.5%) | Difference |
|---|---|---|---|
| $50,000 | $800 | $800 (minimum) | $0 |
| $100,000 | $800 | $1,500 | +$700 to CA |
| $200,000 | $800 | $3,000 | +$2,200 to CA |
| $500,000 | $800 | $7,500 | +$6,700 to CA |
But the federal savings dominate: On $200K profit with $100K salary, you save ~$11,000 in federal SE tax while paying ~$2,200 more to California. Net benefit: ~$8,800/year.
When S-Corp Makes Sense for California LLCs
Good candidates (net profit >$80K):
- The federal SE tax savings exceed the additional CA 1.5% tax
- Breakeven is roughly at $50,000-$60,000 net profit
- Above that, the savings grow with income
Poor candidates:
- Net profit under $50K (CA 1.5% minimum + payroll costs may exceed savings)
- LLCs with the additional LLC fee obligation (fee is based on gross income regardless of election)
- Rental real estate (passive income exempt from SE tax anyway)
How to Elect in California
Ready to get started?
Get Started- File federal Form 2553 with IRS by March 15
- California automatically conforms — no separate state election needed
- File federal Form 1120-S annually
- File California Form 100S (S Corporation Franchise Tax Return) annually
California automatically recognizes the federal S-corp election — you do not need to file a separate state election form (unlike New York which requires Form CT-6).
FAQ
Does the LLC fee still apply with S-corp election?
No. When you elect S-corp status, the LLC fee (based on total income) no longer applies. You pay the 1.5% S-corp tax instead. This can be a significant benefit for high-revenue LLCs — the LLC fee can reach $11,790 while the 1.5% tax is often less.
Can I revoke the S-corp election?
Yes, effective for the following tax year. File a revocation statement. You cannot re-elect for 5 years without IRS consent.