Guide to Forming an S Corporation in California
As a business owner, you may have heard about the benefits of incorporating your business as an S corporation. An S Corporation is a type of business entity that offers certain tax advantages and can help protect your personal assets in the event that your business is sued.
If you’re considering creating S Corp in California and need expert assistance in setting up your company, keep reading to get a better understanding of what the formation process entails.
How do I form an S corporation in CA?
First, let’s take a look at some of the benefits that an S Corp in California can provide. Many small business owners choose to set up an S corp because they want to reduce the amount they pay in taxes. In fact, you might be able to save money on your tax bill by setting up an S corp.
By filing as an S Corp, you will be taxed only once at the corporate level instead of multiple times throughout the year as income flows through your business and onto your personal returns. You also won’t have to worry about self-employment taxes because all profits of the company are distributed among shareholders, who then pay income tax on their portion at their individual rates.
Characteristics of S Corp in California
S Corporations formed in California are required to pay a yearly minimum franchise tax that is 1.5% of the corporation’s net income, or $800 minimum – whichever of the two figures is greater. This tax installment is due quarterly during each accounting period, and must be paid even if your corporation wasn’t active during that time, operated at a loss, or filed for return over a shorter duration than 12 months. If an S corporation is newly formed or qualified and registered with the California Secretary of State, they’re exempt from the minimum tax for its first taxable year.
S corporations are allowed tax credits and net operating losses, which lowers the overall tax burden. Additionally, the computation of taxes on built-in gains and excess passive income is more favorable for S corps than other business types.
S Corp formation
To form an S Corporation in California, you must first register with the state Secretary of State’s office and pay all required fees and taxes. In order to qualify for an S Corporation in California, your business must be owned by individuals who are U.S. citizens or legal residents, have only one class of stock, and cannot have more than 100 shareholders. Other requirements include having no foreign ownership and being able to elect “S Corporation” status on your federal tax return.
If you are interested in setting up in California, there are a few more steps that you will need to take before it can be considered legally registered and operational. First, you must register with the state Secretary of State’s office. You will need to pay all required fees and taxes before your S Corporation will be considered valid by the state.
In order to elect “S Corporation” status on your federal tax return, you must fulfill certain requirements as well. This includes filing an election with the IRS using Form 2553 of the Internal Revenue Service Code. You must also provide a statement showing that the business meets all the specific conditions required for S corporation status in California. If you are unsure about whether or not your business can qualify, it may be helpful to consult with a tax specialist who has experience working with S corporations in California.
Do you need assistance in creating an S Corp in California? We’re here to help!
Starting a new business can be a challenge. Luckily, you can put your trust in diligent tax specialists who can guide you through every step of the process. At David York’s Tax Service, we can ensure getting your business in San Diego County up and running goes smoothly. Our team of dedicated and experienced tax professionals has got you covered – schedule your appointment today!
