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S Corporation

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 shareholder(s)/partners/member(s). 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.

Key Features

  • 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 down" from the S corporation to each shareholder through the 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.
  • If the entity is formed as a corporation under state law, 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.
  • 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 life of an S corporation depends on what type of entity it is for state civil law purposes.
  • S corporations that are corporations or LLCs under civil law corporations must pay the annual $800 minimum franchise tax.
  • Frequently asked questions.

Filing Guidelines

  • S corporations that organize in California, register in California, conduct business in California, or receive California source income, must file California Form 100S, California S Corporation Franchise or Income Tax Return.
  • The S corporation must provide each shareholder with a Schedule K-1 that states the shareholder’s pro rata share of the S corporation's items of income, deductions, and credits.
  • The return due date is the 15th day of the 3rd month after the close of the taxable year.
  • An S corporation is taxed on its net income at a rate of 1.5 percent for California purposes. S corporations are not subject to income tax for federal income tax purposes.

Estimated Tax

  • The estimated tax is payable in four installments. (See California Form 100-ES instructions for additional information and applicable rates.)
  • Installments are due and payable on April 15, June 15, September 15, and December 15.
  • Corporations complete Form 100-ES to report their estimated taxes.
  • Shareholders may have to make estimated tax payments for their own reporting purposes.