California S Corp Filing Requirements: Everything You Need to Know
California S corp filing requirements refer to the prerequisites in the state of California for forming a business entity that is taxed in accordance with Subchapter S of the tax code. 3 min read
2. Filing Requirements for S Corporations in California
3. Advantages of S Corporation
4. Estimated Tax Payments
5. Withholding Agent
Updated November 25, 2020:
California S Corp Filing Requirements
California S corp filing requirements refer to the prerequisites in the state of California for forming a business entity that is taxed in accordance with Subchapter S of the tax code. You must meet certain legal standards, such as no more than 100 shareholders and only one class of stock.
Filing Requirements for S Corporations in California
The first step to form a corporation, in any state in the United States, is to register the business entity with the Secretary of State. California is no exception. After California recognizes a business entity as a corporation, that company can apply for S corporation status with the Internal Revenue Service (IRS). Many businesses select this status because of its advantages to small businesses in income tax. Here are the steps involved:
1. California’s Secretary of State provides a website that allows you to search current corporation names registered in the state. You may search this site to ensure that the name you’ve selected hasn’t already been registered by another business entity. The suffix for the name must indicate the corporation’s status, “Inc.” would be an example.
2. Unlike most states, California does not require a state tax i.d. number.
3. Directors must be appointed. If your business corporation has at least three shareholders, then you must appoint at least three directors. If your corporation has fewer directors than three shareholders, then you may appoint only as many directors as shareholders. Shareholders must consent to these appointments. They need not be California residents, and it’s acceptable to appoint shareholders as directors.
4. A registered agent must be appointed. This agent must be a resident of California.
5. Articles of Incorporation must be drafted. You must include:
– Name of corporation
– Name of Registered Agent and their address
– Corporation’s legal address
– Name of person filing Articles of Incorporation and their address
– Name and addresses of Directors of the corporation
– Business purpose of the corporation
– How many shares and the value of those shares
6. Pay the filing fee required by the Secretary of State of California for incorporation and file the Articles of Incorporation.
7. Apply for S corporation status with the Internal Revenue Service using Form 2553. When a corporation receives S corporation status, California recognizes it as an S corporation for state purposes as well.
8. During the first six-month period, California requires a Statement of Information and a fee.
Advantages of S Corporation
For federal tax purposes, an S corporation designation is a pass-through entity. This means that there are only taxes levied on shareholder returns and not on corporate income. California computes the tax slightly differently than the federal government. California taxes income at corporate level.
Then the income is taxed a second time, by the state of California, when it is passed through to shareholders.
Estimated Tax Payments
Each quarter a portion of the estimated tax payment is required. The dates are April 15, June 15, September 15, and December 15. If an S corporation fails to file their return by the due date, and they have paid their tax liability, a seven-month extension is automatically received.
Then the S corporation can submit payment for taxes owed through Franchise Tax Board form 3539 with payment by the due date.
An S corporation that pays, controls, has custody of, disposes of, or has California source income is considered a withholding agent. Being a withholding agent requires that the corporation withholds tax from all California source income paid to non-resident payees. There are waivers available, and sometimes, a smaller tax is negotiated with the state. The first $1500 in payments does not require any withholding.
In California, unless specifically excluded, an S corporation must withhold and remit to the IRS, then they must also do so to California’s Franchise Tax Board. Also, if an S corporation distributes California source taxable income to a corporation shareholder who is not a resident of California, then the S corporation may be required to withhold taxes.
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