Own a California Business? Your Entity Type Decides Your Tax Bill 💸

Hi,

If you own a business in California, what you pay depends heavily on how it’s set up: a single-member LLC, a multi-member LLC, an S-corp, or a C-corp. Each is taxed differently, files different returns, and has different places to overpay. Most owners set it up once and never check whether it still fits.

What does each type of business actually pay and file?

• Single-member LLC or sole proprietor – profit taxed at your personal rate, plus 15.3% self-employment tax on net earnings up to $184,500 in 2026, and an $800 annual California tax if it’s an LLC
• Multi-member LLC – Form 1065 and a K-1 for every owner, due March 15, with each owner taxed on their share whether or not any cash was paid out, plus the $800 tax and an LLC fee from $900 to $11,790 once California income reaches $250,000
• S-corp – Form 1120-S due March 15, a California tax of 1.5% on net income with an $800 minimum, and a reasonable salary paid through real payroll
• C-corp – a flat 21% federal tax and 8.84% California franchise tax with an $800 minimum, and then tax again on dividends when profit reaches you

Where most owners leave money on the table:

• Your entity structure – an S-corp election can reduce self-employment tax and usually starts to make sense around $60,000 to $80,000 of net profit, while for others staying put, or a C-corp, is the better move. The numbers decide
• The California pass-through entity tax – a 9.3% elective tax, now extended through 2030, that S-corps and multi-owner LLCs can elect. It turns California tax into an entity-level deduction outside the federal cap on state and local taxes, and the June 15 payment has to be planned ahead
• Owner pay – the mix of salary, guaranteed payments, distributions, and dividends changes your payroll tax and the deduction to the company, and it should be set on purpose
• Deductions – home office, vehicle, software, travel, phone, and internet are commonly under-claimed, along with owner health insurance
• The QBI deduction – up to 20% of qualified business income federally, but California doesn’t allow it, so your federal and California numbers need to be tracked separately
• Equipment and year-end purchases – federal 100% bonus depreciation applies to qualifying property acquired after January 19, 2025, but California does not follow it, so the timing matters
• Retirement contributions – a Solo 401(k), SEP IRA, or company plan lowers taxable income, and some deadlines fall at year end
• Estimated payments – California’s 30/40/0/30 schedule surprises almost everyone who assumes four equal payments

The risk isn’t one big mistake. It’s small things that build quietly: estimated payments that don’t match income, a late return that brings penalties from the IRS and the FTB, or a Statement of Information that was never filed and leaves the business suspended. The fourth quarter is when the biggest decisions get made: purchases before December 31, retirement contributions, the final estimated payment, and whether to change your structure for 2027. If an S-corp election makes sense, it’s due by March 15, 2027 to take effect on January 1.

That’s why we handle business taxes end to end, federal and California, so nothing falls between your books, your payroll, and your returns:

• A full review of your current setup – your structure, deductions, and payment schedule, and where you’re overpaying
• Federal and California returns together – your business and personal returns prepared by the same team, so every number lines up
• Estimated payment planning – amounts and dates set for both the IRS and the FTB, so you avoid penalties without overpaying
• Entity analysis – we model your real numbers across every structure and file the election only if it pays
• Year-end planning – purchases, retirement contributions, and timing decisions made before the deadline, not after
• California compliance, handled – the $800 tax, the LLC fee, and the Statement of Information

Reply to this email by Friday and we’ll set up a free 15 minute call with our senior tax advisor. Bring your most recent tax return and your year to date profit and loss, and we’ll show you where your business is overpaying and what to do about it.