S Corp Tax Filing California

S Corporation Tax Overview

An S corporation is a pass-through entity — it does not pay federal income tax at the corporate level. Instead, income, deductions, and credits flow through to shareholders and are reported on their personal returns via Schedule K-1. The primary tax advantage of an S corp over a sole proprietorship or partnership is the ability to split income between salary (subject to payroll taxes) and distributions (not subject to payroll taxes). For profitable businesses, this split can save $5,000–$20,000 or more in annual payroll taxes.

Federal Form 1120-S

S corporations file Form 1120-S at the federal level. The return reports the corporation's income, deductions, and credits, and issues Schedule K-1 to each shareholder. The corporation itself does not pay federal income tax — but it does pay payroll taxes on officer salaries. KDA prepares Form 1120-S for S corp clients and coordinates the corporate return with each shareholder's personal return to ensure consistency.

California S Corp Requirements

California imposes a 1.5% franchise tax on S corporation net income (minimum $800). This is in addition to the shareholders' California personal income tax on their K-1 income. California also requires S corporations to file Form 100S and pay estimated franchise tax. The California S corp election is separate from the federal election — you must file Form 3560 with the FTB to be treated as an S corp for California purposes.

Reasonable Salary Requirement

S corp owner-employees must pay themselves a "reasonable salary" — compensation comparable to what you would pay someone else to perform the same services. The IRS scrutinizes S corps where the owner's salary is significantly below the distributions taken from the company. There is no bright-line rule, but KDA generally recommends a salary of at least 40–60% of net profit for service businesses. Underpaying yourself to avoid payroll taxes is the #1 IRS audit trigger for S corps.

Distributions vs. Salary

The tax advantage of an S corp comes from the distribution portion of owner compensation. Distributions are not subject to payroll taxes (15.3% self-employment tax equivalent). For an S corp owner with $200,000 in net profit who pays themselves a $100,000 salary, the $100,000 in distributions saves approximately $15,300 in payroll taxes compared to taking all $200,000 as salary. KDA models the optimal salary/distribution split for every S corp client annually.

Filing Deadlines

Federal Form 1120-S is due March 15 for calendar-year S corps. California Form 100S is due March 15 as well. Extensions are available (6 months federal, 7 months California). Payroll tax deposits are due on a semi-weekly or monthly schedule depending on payroll size. KDA tracks all S corp deadlines and coordinates payroll tax compliance with annual return preparation.