California LLC vs. S-Corp — The Tax Election
Like everywhere, S-Corp is a tax election — not a separate entity. Your California LLC can elect S-corp status. The California-specific consideration: S-corps pay a 1.5% net income tax (minimum $800) instead of the flat $800 franchise tax. This can increase or decrease your CA-level tax depending on profit. See all comparisons.
California S-Corp Tax Trade-Off
| Net Profit | LLC CA Tax | S-Corp CA Tax (1.5%) | Difference |
|---|---|---|---|
| $50,000 | $800 | $800 (minimum) | Same |
| $100,000 | $800 | $1,500 | +$700 (S-corp costs more to CA) |
| $200,000 | $800 | $3,000 | +$2,200 |
But the LLC fee offset: If your LLC gross income exceeds $250K, the LLC fee ($900-$11,790) applies to default LLCs but NOT to S-corp elected LLCs. This can make S-corp significantly cheaper at the California level for high-revenue businesses.
Example — $600K gross income, $200K net profit:
- Default LLC: $800 franchise tax + $2,500 LLC fee = $3,300 to CA
- S-corp: $3,000 (1.5% of $200K) to CA
- S-corp saves $300 at state level + saves ~$11,000 at federal level
When S-Corp Makes Sense in California
- Net profit consistently >$80K
- Especially valuable when gross income >$250K (eliminates LLC fee)
- Federal SE tax savings dominate the math
- Total combined savings can be $10,000-$30,000+ annually for high earners
FAQ
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Get StartedDoes California require a separate S-corp election?
No. California automatically conforms to the federal S-corp election (Form 2553). No state-level election form needed (unlike New York).
Does the LLC fee disappear with S-corp election?
Yes. S-corp elected LLCs pay the 1.5% tax instead of the LLC fee + franchise tax. The LLC fee only applies to LLCs taxed as partnerships or disregarded entities.