California LLC vs. S Corp Taxes: Which Costs Less?
What California charges each one at the entity level, and where the break-even points are.
At the entity level, California charges an S corporation 1.5% of its net income, with a minimum of $800. An LLC taxed as a partnership or disregarded entity pays a flat $800 plus a fee based on gross receipts. An LLC with modest profit but high revenue often pays more as an LLC. A very profitable business with modest revenue often pays more as an S corp. The owners pay personal income tax on the income either way.
How each one is taxed in California
| LLC (partnership or disregarded) | S corporation | |
|---|---|---|
| Entity-level charge | $800 annual tax + LLC fee | 1.5% of net income |
| Based on | Gross receipts (fee) | Net income |
| Minimum | $800 | $800 (waived in the first taxable year) |
| Return | Form 568 | Form 100S |
| Owners taxed on | Their share of profit | Their wages and share of profit |
Side-by-side examples
California entity-level tax only, for a full-year business that isn't in its first year:
| Gross receipts | Net income | LLC pays | S corp pays |
|---|---|---|---|
| $200,000 | $60,000 | $800 | $900 |
| $400,000 | $150,000 | $1,700 | $2,250 |
| $1,200,000 | $250,000 | $6,800 | $3,750 |
Two break-evens drive the comparison. An S corp pays only the $800 minimum until net income passes about $53,334. An LLC pays only the $800 until gross receipts reach $250,000. Above those points, the S corp's cost grows with profit and the LLC's cost steps up with revenue.
The first year
A new S corporation doesn't owe the $800 minimum for its first taxable year, though it still pays 1.5% on any net income that year. A new LLC owes the $800 annual tax from its first year. The only exception is the reduced $400 first-year tax for LLCs whose first taxable year begins in 2027 through 2029.
Why owners choose an S corp anyway
The bigger difference is usually federal, not California. An LLC member's share of profit is generally subject to federal self-employment tax. An S corporation shareholder who works in the business must be paid a reasonable salary through payroll, and profit paid out beyond that salary isn't subject to self-employment tax. Running payroll adds California employer costs, such as unemployment insurance and ETT, plus bookkeeping. Whether the trade is worth it depends on how much profit sits above a reasonable salary, so it's a question for a tax professional.
You don't have to pick a different entity
An LLC can elect to be taxed as an S corporation with the IRS. California follows the federal choice, so the LLC then files Form 100S and pays the S corporation tax instead of the LLC tax and fee. Both partnerships (including multi-member LLCs) and S corporations can elect the 9.3% pass-through entity elective tax for tax years 2021 through 2030.
Run your numbers
Compare your own figures in the LLC Franchise Tax Calculator and the Corporate & S Corp Franchise Tax Calculator. If you'd be running payroll, the Payroll Tax Calculator shows the employer side. For the two LLC charges, see LLC Fee vs. the Franchise Tax.
Frequently Asked Questions
How much tax does an S corporation pay in California?
1.5% of California net income, with a minimum of $800. Shareholders then pay personal income tax on their share of the income. New S corporations don't owe the minimum in their first taxable year but still pay 1.5% on any first-year income.
How much does an LLC pay in California?
The $800 annual tax, plus an LLC fee of $900 to $11,790 once total California income reaches $250,000. Members pay personal income tax on their share of the profit.
When does an S corp pay more than the minimum?
Once California net income is above about $53,334, because 1.5% of that equals the $800 minimum.
Can my LLC be taxed as an S corporation in California?
Yes. If the LLC elects S corporation status with the IRS, California follows the federal classification: the LLC files Form 100S and pays the S corporation tax instead of the LLC tax and fee on Form 568.
Is the PTE elective tax available to both?
Partnerships (including multi-member LLCs) and S corporations can elect the 9.3% pass-through entity tax for tax years 2021 through 2030, letting owners claim a matching California credit. FTB requires the electing entity to be taxed as a partnership or S corporation, so a disregarded single-member LLC can't make the election itself.
This article is for general information only and is not tax advice. Sources: Revenue and Taxation Code 17941, 17942 and 23153; FTB S corporations, Business tax rates and LLC treated as a corporation pages.