Free tool · California entity costs
California entity cost planner
Most entity comparisons show you the generic math. They leave out California’s $800/year LLC fee, the S-corp’s 1.5% franchise rate, and the real payroll and compliance costs. This one shows you the full picture — at your income level.
Educational estimate — not tax advice. Confirm with your CPA before forming an entity or electing S-corp status.
Your numbers
After business expenses, before owner pay or taxes
What fraction of income you pay yourself as W-2 salary (the remainder becomes distributions). Higher salary = smaller SE tax savings. IRS requires a “reasonable” salary.
Option A
Sole Proprietorship
Zero setup. No state entity. Tax on Schedule C.
CA setup cost
$0
City of SD license
Initial registration
$34
CA franchise tax
No state entity
$0
Annual city renewal
$34
SE tax on income
15.3% on ~92% of net profit
$14,130
Liability protection
None
Total year-1 entity costs
$34
Then $34/yr
Option B
Single-Member LLC
Liability protection. Same SE tax as sole prop.
CA SOS filing (Articles)
$70
Statement of Information
Due within 90 days
$20
City of SD license
$34
CA annual franchise tax
Flat $800/yr minimum
$800
SE tax on income
Same as sole prop — no savings
$14,130
Liability protection
Yes
Total year-1 entity costs
$124
Then $844/yr
Option C
S-Corporation
SE tax savings on distributions — at a compliance cost.
CA SOS filing + SOI
LLC-to-S-corp path
$124
City of SD license
$34
CA franchise tax
Greater of $800 or 1.5% of CA net income
$1,500
Payroll service
Gusto, Rippling, etc.
$600
Extra tax return (1120-S)
Form 1120-S + CA 100S
$900
SE tax savings
Salary $50,000 · Distributions $50,000
−$6,480
Net vs sole prop after all costs
+$3,470/yr
vs. LLC: +$4,280/yr
The California S-corp wrinkle most tools miss
Most states let LLCs off with a flat annual fee. California charges S-corps 1.5% of net income (minimum $800). At $100,000, that’s $1,500/year — compared to a flat $800 for an LLC. The difference ($700/yr) is a real cost that erodes your SE tax savings, especially at higher income levels.
SE tax savings
$6,480
From distributions not subject to payroll tax
Annual S-corp costs
$3,044
CA franchise + payroll service + extra return
Net vs. staying as LLC
+$4,280/yr
S-corp saves money
S-corp likely saves money at $100,000
The estimated net savings of $4,280/year exceeds compliance costs. The main next step is determining a defensible reasonable salary with a CPA — that number drives the whole calculation.
LLC vs. sole prop: what the $800 actually buys
A single-member LLC pays $800/year in California franchise tax more than a sole prop — and saves exactly $0 in self-employment tax. What it buys is legal separation between your personal assets and the business. If a client slips in your office, your business debt goes to collections, or a contract dispute becomes a lawsuit, an LLC keeps your personal bank account, car, and home off the table. For most service businesses with real clients, real contracts, or any physical interaction, the $800 is worth it.
Costs based on 2026 California filing fees and estimates for typical compliance services. SE tax savings use 2026 estimated SS wage base of $176,100. S-corp compliance costs (payroll service and return) are midpoint estimates — actual costs vary by provider and CPA. Not tax advice. Consult a CPA for your specific situation.
California-specific things to know
LLCs do NOT save self-employment tax
A single-member LLC is disregarded for federal tax purposes — it files on Schedule C just like a sole prop. The $800/year California franchise tax adds cost with zero SE tax savings. The only thing it buys is liability protection.
S-corps pay 1.5% in California
Unlike the flat $800 for LLCs, California S-corps pay the greater of $800 or 1.5% of net income in franchise tax. At $100k income, that's $1,500/year — $700 more than an LLC. This is a real California-specific cost most national tools miss.
The $800 LLC fee is tax-deductible
The California minimum franchise tax is a deductible business expense on your federal return, so its after-tax cost is lower than the sticker price. At a 22% marginal rate, $800 costs you about $624 after the deduction.
Statement of Information timing
LLCs must file Form LLC-12 (Statement of Information) within 90 days of formation, then every two years. Missing it costs $250. Set a calendar reminder the day you form the LLC — it's an easy $250 to lose.
S-corp election has a deadline
To be taxed as an S-corp for the current year, you must file Form 2553 by March 15 (if already operating) or within 75 days of forming a new entity. Missing this window means waiting until next year.
Reasonable salary matters in California too
California conforms to the federal requirement for a reasonable salary in S-corps. It also means California payroll taxes apply to the salary portion — plan for state SDI and ETT contributions on top of FICA.
Also read
Do I Actually Need an LLC?
An honest answer to the question every new business owner asks. What an LLC actually protects, when it matters, when it doesn't, and what to do if you're not sure.
Read S-corp planningLLC vs S-Corp: Which Business Structure Is Right for You?
An LLC is a legal structure; an S-corp is a tax election — and most S-corp owners have both. When the S-corp election saves money, when it doesn't, and what the compliance costs actually are.
Read California taxIs the California $800 LLC Tax Deductible?
When the annual LLC tax applies, when it can be deducted, and whether your entity structure still makes sense.
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