An S corporation is a corporation formed under state civil law or any business entity (such as a partnership or LLC that elects to be taxable as a corporation for tax purposes) that elects under federal law to be taxed under Subchapter S. An entity that has elected to be taxable as an S corporation for federal tax purposes is also treated as an S corporation for California tax purposes. An S corporation generally offers liability protection to its owners (shareholders) and is a conduit where the profits or losses of the S corporation flow through to the shareholders, partners, or members. Liability of the owners for debts and obligations of the business depends on what type of entity the S corporation is under state civil law, e.g. corporation, partnership, or LLC.
- An entity must elect to be treated as an S corporation and is limited by the types of owners, which may not exceed 100 shareholders.
- An S corporation does not pay federal income tax.
- Under California law, the S corporation is subject to a 1.5 percent tax on its net income and is a conduit similar to a partnership.
- The items of income, deductions, and credits flow through from the S corporation to each shareholder through the California Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc. Each shareholder is responsible for paying taxes on their pro rata share of the S corporation’s items of income, deductions, and credits.
- A separate bank account and separate records are required with this form of entity.
- The management structure of the S corporation will depend upon what type of entity it is under state civil law, e.g. corporation, partnership, or LLC. The shareholders of the corporation are not liable for the losses of the business, and creditors may only look to the corporation and its business assets for payment.
- S corporations are subject to the annual $800 minimum franchise tax, see Filing Guidelines for more information.
- S corporations that are incorporated in California, or registered to do business in California with the Secretary of State, or doing business in California, or receive California source income, must file Form 100S, California S Corporation Franchise or Income Tax Return. Furthermore, every corporation that is incorporated, registered or doing business in California must pay the $800 minimum franchise tax.
- The return due date is the 15th day of the 3rd month after the close of the taxable year.
- The S corporation must provide each shareholder with a California Schedule K-1 that states the shareholder’s pro rata share of the S corporation’s items of income, deductions, and credits.
- An S corporation is taxed on its net income at a rate of 1.5 percent for California purposes. See tax rates table for complete list of tax rates. S corporations are not subject to income tax for federal income tax purposes.
- S corporations doing business or deriving income from in and out of California will use Schedule R to determine the income subject to tax in California.
- See Doing Business Rules to determine if you are considered doing business in California.
- The estimated tax is payable in four installments as follows:
- 30 percent for the first required installment due April 15.
- 40 percent for the second required installment due June 15.
- No estimated tax payment is required for the third installment due September 15.
- 30 percent for the fourth required installment due December 15.
See California Form 100-ES instructions for additional information and applicable rates.
- Corporations complete Form 100-ES to report their estimated taxes.
- Shareholders may have to make estimated tax payments for their own reporting purposes.
Withholding on California Source Income
- A S corporation is considered a withholding agent if they control, receive, have custody of, dispose of, or pay California source income. Get Small Business Withholding Tool | PDF version.
- A withholding agent is required to withhold from all payments or distributions of California source income made to a nonresident payee unless the withholding agent receives authorization from us for a waiver or a reduced withholding amount. Withholding is optional, at the discretion of the withholding agent, on the first $1500 in payments made during the calendar year.
- If a S Corporation is required to withhold and remit backup withholding to the IRS, they also are required to withhold and remit to FTB, except for instances that are specifically excluded for California purposes.
- The S corporation may be required to withhold taxes if the S corporation distributes California source taxable income to a nonresident S corporation shareholder. For more information about withholding, see FTB 1017, Resident and Nonresident Withholding Guidelines.
Secretary of State’s (SOS) Statement of Information Penalty
The California Secretary of State imposes a penalty if your S corporation fails to file its required Statement of Information. Go to Secretary of State’s (SOS) Statement of Information Penalty for more information.
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