Corporation Vs S Corporation

In California, the state government levies a tax on corporate income at a rate of around 9%, regardless of how much money the corporation made. Oftentimes this means that corporations are subject to 'double-taxation,' wherein California taxes both corporate income and the income that shareholders earn through dividends.

In order to avoid double-taxation, corporations often choose to be recognized and taxed as S-Corporations. S-Corp status results in all of the business’s profits flowing through the corporation, directly to the shareholders, who then report these earnings as income.

This flow-through structure means that the federal government does not tax corporate profit. California does recognize S-Corporation elections and no state-level paperwork has to be filed to be taxed an S-Corp in California. However, unlike many other states, California still levies a tax of 1.5% on any income earned by an S-Corporation.

To maintain S-Corporation status, a corporation in California must have fewer than 100 shareholders, pay an annual franchise tax in addition to California's income tax, and fulfill all of the regular legal obligations that corporations are bound by.

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Corporation Versus S Corppration

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