Entity Selection Calculator for California Business Owners
Most S corp calculators stop at the payroll tax saving. This one carries California’s franchise tax, the LLC gross receipts fee, the QBI deduction the election gives up, payroll processing and the extra return – then shows you the arithmetic on every line.
Costs you least LLC + S corp election $25,230 a year saves $3,779
Change your numbers See every line Salary dial What to do next
One number, and every figure on this page moves
One number. Every figure on this page is computed from it.
Net profit, not revenue - what's left after business expenses, before you pay yourself.
This changes the answer immediately. With no entity there is no $800 minimum and no LLC fee - and no liability separation either.
This calculator needs JavaScript. Everything below is a fully worked example at $200,000 of net profit, and every figure in it is real.
Tax year 2026
What each structure costs you for one year at $200,000 of net profit
What each structure costs you to be that structure for one year: self-employment or payroll tax, California's franchise tax and LLC gross receipts fee, the deductions each structure gains or gives up, payroll processing, and tax preparation for the returns it requires. Income tax on your profit is deliberately left out of all three columns - see what is in this number, below. This compares what each structure costs. It is not a comparison of liability protection: an LLC and a corporation both give you that, and a sole proprietorship does not.
Sole proprietor (no entity)
no entity, so no $800 minimum
Total for the year
$29,009 a year
$3,779 more a year than the best option
LLC + S corp election
Total for the year
$25,230 a year
Saves $3,779 a year over the next best
about $1,235 to set up, paid back in roughly 4 months.
LLC + S corp election costs the least - $25,230 for the year, $3,779 less than Sole proprietor (no entity). That figure carries the self-employment or payroll tax, California's franchise tax and LLC fee, the deductions this structure gains or gives up, the $900 a year to run payroll, and the $1,775 we would charge to prepare its returns. It is not your whole tax bill - income tax on the profit is left out of all three columns, because it is about the same either way. It is what each structure costs you for one year.
In this number
- Self-employment tax, or payroll tax once you are on a W-2
- California franchise tax - the $800 minimum, 1.5%, or 8.84%
- California LLC gross receipts fee
- The C corp's second layer of tax on money you take out
- Deductions that change with the structure - QBI, and the deductible half of payroll tax
- Payroll processing, where the structure requires payroll
- Tax preparation for the returns each structure requires
Not in this number
- Federal income tax on your profit
- California income tax on your profit
- Cost to form or convert an entity - shown separately below
- Registration or filings outside California
- Multi-state apportionment
Income tax on your profit is close to the same under all three structures. Putting it in would add the same figure to every column and bury the difference you came here to see. One exception: the C corp's second-layer line is measured against what the same income would have cost you as a pass-through, so income tax appears inside that line as an offset rather than as a charge.
shaded: what the election saves you that year where it breaks even your profit
Three things change that answer
Every one of these recomputes the three cards and the chart above the moment you change it. Scroll up after any change, or watch the bar at the foot of the screen.
Wages, a spouse's income, investment income - anything that sits on the same return.
Consulting, law, accounting, health, financial services, performing arts, athletics - any field where the product is essentially your skill. Engineering and architecture are specifically excluded.
An S corporation is capped at 100 shareholders, all of whom must be US citizens or resident aliens, and it can issue only one class of stock.
Add California receipts, health premiums and retirement - every figure on this page recomputes
These recompute the comparisonChange any of them and the cards, the chart, and the table further down all move with them.
Your total California sales for the year, before any expenses - not your profit. California charges its LLC fee on this number, and the fee starts at $250,000 of receipts. This box follows your profit figure until you type into it, so if your sales are higher than your profit, enter them here.
Switched off because you are not an LLC today. Only an LLC pays this fee, so this figure changes nothing in any of the three columns. Set "What are you today" to LLC and it turns back on.
Both reduce the income the QBI deduction is calculated on.
These change the wording, not the numbersThey add a line of context under the cards. Nothing recomputes.
Outside funding is the one fact that makes a C corp a real answer rather than a theoretical one - but it changes the reasoning, not the cost.
S corp vs LLC tax savings calculator - every line, with the authority
Every figure in this table is computed from the $200,000 you entered above - nothing here is an example. Open any line to see the formula with your own numbers in it, the inputs it used, and the section of the Code or the FTB publication it comes from.
| Line | Sole proprietor (no entity)no entity, so no $800 minimum | bestLLC + S corp election | C corpfully distributed |
|---|---|---|---|
| What you told us | |||
| Net profit | $200,000 | $200,000 | $200,000 |
| Reasonable salary | — | $100,000 | $100,000 |
| Tax on the profit | |||
| on a W-2 salary this is payroll tax (FICA) - the same 15.3%, on a smaller base | + $28,234 | + $15,300 | + $15,300 |
How it works Self-employment tax applies to 92.35% of net profit. The 12.4% Social Security half stops at the wage base; the 2.9% Medicare half does not, and an extra 0.9% starts above the threshold for your filing status. An S corp pays the same rates on salary only - which is the whole of the saving, before anything is subtracted from it. Your numbers Sole proprietor (no entity): $200,000 × 92.35% = $184,700 of net earnings. Social Security $184,500 × 12.4% = $22,878. Medicare $184,700 × 2.9% = $5,356. LLC + S corp election: Social Security $100,000 × 12.4% = $12,400. Medicare $100,000 × 2.9% = $2,900. Both halves are shown together, because both come out of the same business. C corp: Social Security $100,000 × 12.4% = $12,400. Medicare $100,000 × 2.9% = $2,900. Both halves are shown together, because both come out of the same business.IRC §1401 · §1402(a)(12) · §3111 | |||
| the QBI deduction and the deductible half of payroll tax, measured against the first column. A structure that ends up with more deduction than the first column shows a credit here. The first column is the baseline, so its line is $0. | $0 | + $5,870 | + $10,303 |
How it works Deductions are not cash. This line values them by stacking them on top of your bracket table and taking the difference, and it uses two brackets: the employer-half deduction is worth your federal and your California brackets together, and the QBI deduction is worth your federal brackets alone, because California doesn't give you one. Only the difference against the first column is shown. For a C corporation the employer half is deducted by the corporation; it shows here at your own brackets because the second-layer line below is measured against what the same income would have cost you personally. The employer half. A sole proprietor deducts half of self-employment tax above the line. An S corp deducts the employer share of FICA at the entity, and a C corp deducts it at the corporation. These are not the same number, and the difference is a real cost of the election that most calculators drop. California allows this deduction. QBI, federal. Twenty percent of qualified business income, calculated after the deduction above, and capped at 20% of taxable income. Above the threshold for your filing status two further limits appear: for a specified service business the deduction phases to zero, and for everyone else it is capped at 50% of W-2 wages - which a sole proprietor, having no payroll, does not have. QBI, California. Zero, in every case, for every structure. California does not conform to section 199A, and because the California return starts from federal adjusted gross income the deduction never enters the California computation at all. This is not an oversight in the model and it is not a footnote - it is roughly a third of the federal benefit, gone, for every California owner reading this. Your numbers Sole proprietor (no entity): deductions worth $12,851 ($4,701 from half of self-employment tax, $8,150 from QBI). This column is the baseline, so its line is $0. LLC + S corp election: deductions worth $6,980 ($2,547 from the employer share of FICA, $4,433 from QBI), against $12,851 in the Sole proprietor (no entity) column, so this structure gives up $5,870 of deduction. C corp: deductions worth $2,547 ($2,547 from the employer share of FICA, deducted by the corporation, no QBI deduction), against $12,851 in the Sole proprietor (no entity) column, so this structure gives up $10,303 of deduction. Sole proprietor (no entity): $14,117 - half of self-employment tax. LLC + S corp election: $7,650 - the employer share of FICA. C corp: $7,650 - the employer share of FICA, deducted by the corporation.IRC §164(f) · §3111 Sole proprietor (no entity): Tentative deduction $185,883 × 20% = $37,177. Taxable income $169,783 is at or below the $201,750 threshold, so no wage limit and no service-business limit applies. Capped again at 20% of taxable income: $169,783 × 20% = $33,957. LLC + S corp election: Tentative deduction $92,350 × 20% = $18,470. Taxable income $176,250 is at or below the $201,750 threshold, so no wage limit and no service-business limit applies.IRC §199A · Rev. Proc. 2025-32 Zero, in every case, for every structure. California does not conform to section 199A, and the California return starts from federal adjusted gross income, so the deduction never reaches it.R&TC §17024.5 · FTB Pub. 1001 | |||
| The California layer, and the C corp's second layer | |||
| $0 | + $1,385 | + $8,164 | |
How it works Every LLC and every corporation doing business in California owes at least $800 a year. An S corporation owes 1.5% of its net income with that $800 as the floor; a C corporation owes 8.84%. There is no first-year exemption for an LLC - the one that existed expired at the end of 2023, though SB 122 cuts the first-year amount to $400 for an LLC whose first taxable year begins in 2027 through 2029. Your numbers Sole proprietor (no entity): A sole proprietorship is not registered with the Secretary of State, so it owes no franchise tax and no minimum. That is the one thing it is cheaper at - and it buys no liability separation. LLC + S corp election: California taxes an S corporation at 1.5% of net income: $92,350 × 1.5% = $1,385. An LLC that elects S corp treatment pays this instead of the LLC gross receipts fee. C corp: California taxes a C corporation at 8.84% of net income: $92,350 × 8.84% = $8,164.R&TC §17941 · §23151 · §23802 · FTB Pub. 3556 | |||
| — | — | — | |
How it works Charged on top of the $800, on California gross receipts rather than profit, in four steps. It is prepaid on Form 3536 by June 15, and underpaying carries a 10% penalty. An LLC that elects S corp treatment pays the 1.5% instead and owes no fee at all. Your numbers | |||
| — | — | + $3,524 | |
How it works A C corporation pays tax on its own income, and then you pay again on what it distributes. This line is the difference between those two layers and what the same income would have cost you as a pass-through. It values that comparison by stacking the income on your bracket table rather than by running a full return, so it can differ from a filed return by a small amount. Where the two corporate layers come to less than the pass-through would have, this line is a credit rather than a charge. Your numbers C corp: The corporation pays $8,164 to California and $17,679 federally on $92,350, leaving $66,507. $66,507 is distributed and taxed again - $9,976 federally at 15% and $6,185 by California, which taxes dividends as ordinary income. The same income as a pass-through would have cost $30,317, so the second layer costs $3,524 against a pass-through.IRC §11 · §1(h)(11) · §1411 · R&TC §23151 | |||
| Income tax on your profit is not in any of these columns. It is close to the same under all three, so including it would add the same figure to each and hide the difference. What is here is only what changes with the structure - plus what it costs to file and run. | |||
| What this structure costs in tax | $28,234 | $22,555 | $37,291 |
| What it costs to run | |||
| the midpoint of our published range for the returns each structure requires | + $775 | + $1,775 | + $1,975 |
This is our own fee, shown as an example, taken from our published pricing. The point is not the price - it is that the number moves with the structure. A sole proprietor's Schedule C rides on the personal return; an S corp adds an 1120-S and a K-1; a C corp adds an 1120. Whoever prepares your return will charge more for the corporate ones. If you already have a preparer, ask what they charge for an 1120-S and substitute it - the comparison still holds. Each figure here is the midpoint of our published range, and your own quote moves with complexity. We show it because a comparison that leaves out the cost of the winning option is not a comparison. Your numbers Sole proprietor (no entity): $775, the midpoint of our published $650 to $900 for a Schedule C with the personal return. LLC + S corp election: $1,775, the midpoint of our published $1,600 to $1,950 for an 1120-S with the personal return. C corp: $1,975, the midpoint of our published $1,750 to $2,200 for an 1120 with the personal return.what we charge to prepare each return | |||
| a corporation has to run payroll; a sole proprietor does not | — | + $900 | + $900 |
How it works Electing S corp or C corp status means running real payroll: quarterly 941s, an annual 940, a W-2, and California DE 9 and DE 9C filings. This is the going rate for a single-owner payroll service. It is a real cost of the election, and leaving it out is why most calculators put the break-even point far lower than it belongs. Your numbers LLC + S corp election: $900 a year to run payroll, which this structure requires and a sole proprietor does not. C corp: $900 a year to run payroll, which this structure requires and a sole proprietor does not. | |||
| What this structure costs for the year | $29,009 | $25,230 | $40,166 |
| vs. best option | +$3,779 | best | +$14,936 |
Want this as a one-page summary? A single sheet with your figures, the structure that costs least, every line of the table above, and the assumptions behind all of it.
Next section Open the reasonable salary dial It is the only figure on this page you choose rather than compute, and every total above moves with it.The one number a calculator can't decide for you
$100,000 a year - 50% of your $200,000 of net profit
Where these bands come from
There is no safe harbor here. No percentage is blessed by statute, no revenue procedure endorses one, and the 50/50 and 60/40 rules you'll find online are practitioner habit, not authority. The bands on this slider are a percentage of your net profit - defensible at 40-60%, stretch at 25-40%, exposure below 25% - and they are our own convention, published so you can argue with it.
What actually decides the number is what your work pays somebody else: the hours you put in, the roles you fill, what a comparable person in your field earns in your market, and how much of the profit came from your labor rather than from capital or from other people's. That is a documented judgment, made once a year and defended if it's ever questioned. It is not a slider position, and the honest thing this page can tell you is that we won't pretend otherwise.
Net benefit keeps climbing as the salary falls, and it does not stop climbing at any line the law draws - because the law does not draw one. That is the whole difficulty. The saving below the defensible band is real, and so is the exposure: an examiner who disagrees reprices the salary, and the payroll tax, the penalties and the interest all follow it. We stop the slider at 25% of profit for that reason - not because 25% is safe, but because we will not put a figure on this page we could not defend for you. Pick a number you could explain out loud, then read the saving off this dial - not the other way around.
What this calculator doesn't cover, and where the figures come from
- Federal and California income tax on your profit are not in any of the three columns. They are close to the same under all three structures, so including them would add the same figure to every column and hide the difference.
- With more than one owner, the figures are one owner’s arithmetic against the share of profit you enter. The page does not divide profit between owners or apply each owner’s own bracket.
- Reasonable compensation is a facts-and-circumstances judgment. The dial above shows you the tradeoff. It cannot defend a number to an examiner and it does not pretend to.
- Multi-state apportionment isn’t modeled. If you have receipts, payroll or property outside California, the state layer here is incomplete and probably understated.
- Converting an existing entity has transition costs this page doesn’t count – built-in gains, basis and accumulated adjustments, payroll set-up, and in some cases a short year.
- Retirement plan choice can change the answer more than the entity does. A solo 401(k) against a SEP at the same profit is frequently the larger number, and it interacts with the salary above.
- Nothing here is a projection of your total tax. This is a comparison of what each structure costs, not a return, and the two are different documents.
Every figure is for tax year 2026 and comes from the sources below.
Tax year 2026 · figures verified August 15, 2026 · Sources: IRS Rev. Proc. 2025-32, Notice 2025-67, FTB Pub. 3556, FTB Pub. 1001 - California brackets and the California standard deduction are FTB's 2025 published schedule, which FTB directs taxpayers to use for 2026 estimates until it releases the 2026 indexed amounts in December.
Informational only, and not tax advice. Using this calculator does not create a client relationship. TrueArc Tax and Financial Services is a CTEC-registered tax preparation firm with an active PTIN.
What changed for 2026
- The standard mileage rate changed mid-year – 72.5¢ through June 30, 76¢ from July 1. Two figures, one year, and any tool that asks for a single mileage number is running on last year’s law.
- The 1099-NEC threshold went from $600 to $2,000 for payments made on or after January 1, 2026. Most owners still have the old number in their heads.
- Employer-convenience meals dropped to 0% deductible under the new §274(o). Client and travel meals stay at 50%.
- Bonus depreciation is permanent at 100% federally for property acquired after January 19, 2025 – and California still allows none of it. The conformity date is January 1, 2025, which is before the change.
- QSBS changed for stock acquired after July 4, 2025: the cap is $15 million and the exclusion tiers at 50%, 75% and 100% for three, four and five years. Stock acquired earlier keeps $10 million and the five-year cliff. California conforms to none of it.
- The SALT cap is $40,400, phasing down above $505,000 of MAGI. It was $10,000 when most of the advice you’ll find about California’s PTE election was written, and that election is a materially different decision now.
The next move, and the date attached to it
You're past the line, and there's a deadline attached
At your numbers the election is worth having, and the thing standing between you and it is a date rather than a decision. Form 2553 is due no more than two months and fifteen days after the start of the tax year you want it to take effect - and a filing extension does not extend it. If that window has already closed for 2026, late relief under Rev. Proc. 2013-30 is usually available and usually straightforward, but it is a filing, not a checkbox.
You're past the line, and you don't have an entity to elect on yet
The election rides on an entity, so the order matters: form first, then elect, and the two have different deadlines and different filing fees. California charges $70 for the Articles of Organization and $20 for the Statement of Information within ninety days, and the $800 franchise tax is owed in the first year - the exemption that used to cover it expired at the end of 2023 and was not renewed. One timing point: for an LLC whose first taxable year begins in 2027, SB 122 cuts that first-year tax to $400, so forming in January rather than December is worth $400 if you are not electing S corp treatment.
Not yet - and here's what would change it
At your numbers the election costs more than it saves, and the honest advice is to wait. Three things move that line: profit rising, a salary you can defend at a lower share of it, and - if you're a non-service business - crossing the income threshold where the QBI deduction starts depending on payroll you don't currently have. That last one flips the whole comparison, and it flips it in the direction most people don't expect.
Every one of these is a fifteen-minute conversation before it's an engagement, and the fifteen minutes are free.
Questions people ask before they decide
Should I form an LLC or an S corp?
Neither replaces the other. An LLC is a legal entity; an S corp is a tax election an LLC can make. In California the real question is whether your profit is high enough that payroll tax savings beat the 1.5% franchise tax, payroll costs and the QBI deduction you give up. Three variables, and the calculator above weighs all three.
At what net profit does an S corp election start paying for itself in California?
It depends on two things most national calculators don’t ask about: the salary you can defend, and your California gross receipts. California’s $800 minimum, the LLC gross receipts fee, the cost of running payroll and the extra return all have to be earned back before the election is worth anything, which puts the crossover higher here than a national figure would suggest. The chart above computes it from your figures and marks where you sit.
Does California tax an S corp differently from an LLC?
Yes, and it’s the difference most tools miss. An LLC pays $800 plus a gross receipts fee – $900 at $250,000 of receipts, rising to $11,790. An S corp pays 1.5% of net income with $800 as the floor and no receipts fee at all. Which costs less flips with your profit and your receipts, separately.
Does the $800 California franchise tax apply in an LLC's first year?
Yes. The first-year exemption expired December 31, 2023 and was not extended, so an LLC formed in 2026 owes $800 for its first taxable year. SB 122 cuts the first-year annual tax to $400 for LLCs, LPs and LLPs whose first taxable year begins in 2027 through 2029 – it does not reach an LLC that elects S corp treatment, because that is classified as a corporation. Corporations still have a first-year minimum-tax exemption, but a first-year corporation still owes 1.5% or 8.84% on actual net income. Budget the $800 from day one for a 2026 formation.
What counts as a reasonable salary for an S corp owner?
Whatever your work would cost to hire – measured by your hours, the roles you fill, comparable wages in your field and market, and how much profit came from your labor rather than capital. No percentage rule is authority; the 50/50 and 60/40 shortcuts are habit. The dial above shows the tradeoff; defending the figure is a judgment.
When is the Form 2553 deadline, and does a filing extension extend it?
No more than two months and fifteen days after the beginning of the tax year the election takes effect, or any time during the preceding tax year. A filing extension does not extend it – that is the most common and most expensive misreading of this rule. Missed windows are usually fixable under Rev. Proc. 2013-30.
Can I change my entity later if I get this wrong?
Usually, and it’s more common than people think. An election can be revoked, though re-electing generally means waiting five years. Converting an entity outright brings transition costs this calculator doesn’t model – built-in gains, basis, and sometimes a short tax year. Getting it right at the start is cheaper than fixing it, but fixing it is rarely closed off.
The arithmetic is done. The judgment calls are not.
Fifteen minutes, free, and specific to what you just computed. Not a sales call - you'll get an honest read on whether the election is worth making this year, what your salary would have to be to hold up, and what it would cost to run. If the answer is that you should wait, you'll hear that instead.
CTEC-Registered Tax Preparer · Authorized IRS e-File Provider · Serving Woodland Hills and California by video