Which business structure is right for you?
Your entity choice quietly shapes how much tax you pay, what you're personally on the hook for, and how much paperwork you carry each year. There's no single best answer — only the one that fits your owners, your profit and your risk.
Five structures, in the order most businesses grow into them.
Each one is a step up in protection and paperwork. Tap one for a closer look — who chooses it, and what to watch out for.
Follow the questions to a starting point.
A simplified path based on the questions we actually ask. It points you toward a likely fit — the final call always comes after we run your numbers.
Decision logic adapted from CNE's intake framework and Spidell's California tax guidance. Illustrative only — not a recommendation for your situation.
The two rise together.
As you move toward stronger protection and bigger tax savings, the price tag and the paperwork climb with them. The trick is matching the structure to where your business actually is.
Relative ratings, not exact figures — meant to show the trend. The right level of cost and complexity is the one your income and goals justify.
Where the self-employment tax savings come from.
Self-employment tax (about 15.3%) is the big lever. As a sole proprietor it hits all your profit. As an S-Corp it only applies to the salary you pay yourself — not to the rest of the profit you take out, called distributions. Here's the same $150,000 profit, two ways.
The salary, payroll and extra filings can cost more than the election saves. Waiting is often the right call.
Part of your Social Security tax is already paid at work, so the S-Corp's payroll-tax savings shrink.
Appreciated real estate gets trapped in an S-Corp; moving it out later is a taxable event.
If the numbers say don’t switch, we’ll tell you.
Simplified illustration for explanation only. Self-employment tax: $150,000 × 92.35% × 15.3% ≈ $21,200 (IRC §1401); S-Corp: 15.3% on a $60,000 salary ≈ $9,200; wage base per SSA, 2026. Real numbers depend on a reasonable-salary study, payroll costs, state tax, and your full return. Sources for SE-tax mechanics: IRS, AICPA.
Self-employment tax isn't the same as income tax.
This trips up almost every new owner. The same dollar of profit can be touched by three separate taxes — and they don't work the same way or fund the same things. Self-employment tax is the one most people don't see coming, because as an employee it was quietly split with your employer.
Income tax asks "how much did you make?"
Federal and state income taxes look at your total income and rise in steps. Earn more, and the next dollars are taxed at a higher rate. Deductions and credits can lower the bill.
SE tax asks "did you work for it?"
Self-employment tax is a flat 15.3% on your earnings from work, no matter your bracket. It replaces the Social Security and Medicare taxes a W-2 job splits with your employer — which is exactly the tax an S-Corp can help you reduce.
Rates shown are current statutory ranges, rounded; SE tax applies up to the annual Social Security wage base, with the Medicare portion continuing above it. Sources: IRS, California Franchise Tax Board.
An employee and a self-employed owner, side by side. Similar income tax; a very different Social Security and Medicare bill.
See the numbers →It is usually not the amount. It is that nobody withheld it for you all year, so it lands as one number in April.
Read why →Three rules that change the math.
Up to 20% of qualified business income comes off the return — but the salary an S-Corp pays you does not count.
How it works →A legal way around the federal SALT cap for partnerships and S-Corps. One of the bigger recent planning openings.
How it works →Charged on sales before expenses, on top of the $800 minimum. A busy, low-margin LLC can owe more than it expected.
See the tiers →Every structure comes with a to-do list. Know yours before you choose.
The protection and the tax savings only hold if the entity is kept up. This is what each one asks of you every year — and what we watch the dates on for you.
- ✓Schedule C with your personal return
- ✓Quarterly estimated payments
- ✓Local business license or DBA renewal
- ✓Form 1065 and a K-1 to every partner
- ✓Written agreement kept current
- ✓LP: $800 minimum and LP-1 on file
- ✓$800 minimum plus the gross-receipts fee
- ✓Statement of Information, every two years
- ✓Operating agreement and member records
- ✓Reasonable salary run through payroll
- ✓Form 1120-S / 100S, plus payroll filings
- ✓Annual minutes and Statement of Information
- ✓Corporate return and 8.84% CA tax
- ✓Board and shareholder minutes
- ✓Statement of Information, every year
What the state expects, on what schedule.
California adds its own filings and the $800 minimum franchise tax on top of federal rules. Missing these is where good-standing problems and penalties usually start.
Calendar-year filers; dates shift for fiscal years and weekends/holidays. The LLC fee tiers are based on total California source income and apply on top of the $800 minimum. Confirm current deadlines and fee amounts with the IRS, FTB, and EDD each year.
This guide is general educational information about California business entities, not legal or tax advice. Rules, rates and thresholds change and apply differently to every business — please talk with us before acting on anything here. Sources →
Still weighing your options? Let's run your numbers.
Reading about the structures gets you part of the way — the right answer comes from your actual profit, owners, and goals. We'll model it and recommend the structure that keeps the most in your pocket.
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