Why Form a Corporation in California?

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California Corporation Taxes and Fees

You’ll need to pay certain taxes and fees for your California S Corp or C Corp. We’ve included the more common ones below.

Common Fees for a California Corporation

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Taxes You and Your California Corporation Need to Pay

California S Corporations and C Corporations are taxed differently. Find the details below.

Both S Corporations and C Corporations in California Need to Pay These Taxes

Estimated Taxes for Your California Corporation

Most California corporations will need to pay estimated taxes throughout the year, depending on the amount of income and profit you expect to make. The most common types of estimated tax are:

  • Federal income tax
  • Federal self-employment tax
  • California state tax

Most California S Corporations and C Corporations will pay estimated taxes four times a year. Speak to your accountant for more information.

California Corporation Employee Taxes and Insurance

If your CA corporation employs workers, you will need to pay insurance and taxes to the state for each employee.

Get more requirements from the California Labor and Workforce Development Agency website.

Taxes Payable by All Individuals Working for California Corporations

Pay Federal Income Tax on California Corporation Earnings, Dividends and Distributions.
You will need to pay regular federal income tax when you file your tax return every year.

California S Corporations — Additional Tax Liabilities

Self-Employment Tax

In a California S Corporation, your earnings “flow through” from the business to your personal tax return. This means you must pay self-employment tax on those earnings at a rate of 15.3 percent. Note that you can deduct standard tax deductions and business expenses.

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You will be able to deduct your business expenses from your income when working out how much self-employment tax you owe. Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:

  • On profits of $40,000, you would pay self-employment tax of $6,120
  • On profits of $90,000, you would pay self-employment tax of $13,770
  • On profits of $140,000, you would pay self-employment tax of $21,420
  • On profits of $160,000, you would pay self-employment tax of $24,480

In some cases, part of the income from an S Corporation can be paid as a “distribution” rather than “salary,” so it would not be subject to self-employment tax.

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California C Corporations — Additional Tax Liabilities

Corporation Tax

Unlike the the Limited Liability Company and the S Corporation, a California C Corporation is required to file a corporate tax return and pay corporation taxes on any profits. When those taxed profits are paid to shareholders as dividends, they will also be subject to taxation on that individual’s tax return. This is known as “double taxation.”

Stock Dividends From C Corporations

A California C Corporation may pay shareholders dividends as a share of the profits of the company. The value of dividends that each shareholder is entitled to depends on how many shares they own.

Dividends that are distributed to shareholders are taxed twice: first at the corporate level as profit (on the corporation’s Form 1120) and again at the individual level as stock dividends (on the shareholder's Form 1040).

Ready to Start Your California Corporation?

Incfile provides a cost-effective service to help you create your California corporation. We guide you through the process and handle most of the administrative steps, such as filing the necessary forms on your behalf.

Our basic package also provides a free Registered Agent service for the first year. If you're looking for help starting an S Corporation or C Corporation, our comprehensive services provide outstanding value.

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Filing time and price

The state charges this amount to file a new business entity. This fee goes directly to the Secretary of State.

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Compliance Requirements

This report is mandatory and must be filed within the specified time frame in order for the entity to remain in good standing with the state. Failure to file this report can lead to the company being revoked or administratively dissolved.

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