California entity comparison
Which entity your numbers actually justify
Most entity calculators are built for a state that is not California. This one prices the things that decide the answer here: the pass-through entity elective tax a sole proprietor is not allowed to make, the §199A wage limit an owner salary unlocks, uncapped state disability insurance, and the 1.5% franchise tax with its $800 floor.
Your numbers
Net profit before any owner compensation and before entity-level taxes. Employee wages already taken out.
What the work is genuinely worth. This is reasonable compensation, not a dial to minimize tax.
Health, law, accounting, consulting, financial services, performing arts, athletics, brokerage, or a business whose main asset is someone's reputation or skill. These lose §199A entirely above the phase-in range.
What you leave in the company is deferred, not saved. The comparison counts the tax on it either way.
On these numbers
An S corporation saves you $35,652 a year
$171,677 of total tax and running cost, against $207,329 as a sole proprietor. That is an effective rate of 28.6% on $600,000 of income.
Figures entered
- Filing status
- Married filing jointly
- Business profit
- $600,000
- Owner salary
- $180,000
- Employee wages
- $0
- Business type
- Not a service business
- PTE tax elected
- Yes
- C corp payout
- 50%
- Other household income
- $0
- Itemized deductions and property tax
- $36,000
Astute Advisors, Entity Clarity Calculator. Rates verified July 26, 2026. General information, not tax advice.
Total tax and cost
$171,677
S corporation, this year
Cash reaching you
$428,323
After every tax and running cost above
Effective rate
28.6%
Federal, California, payroll and entity, combined
Total tax and cost, side by side
Every line, all three ways
| Line | Sole proprietorSchedule C | S corporationBestForm 1120-S | C corporationForm 1120 |
|---|---|---|---|
| Entity-level taxes and cost | |||
| California franchise tax (1.5%, $800 minimum) | — | $6,050 | — |
| California PTE elective tax (9.3%)Deducted federally at the entity level, credited against your California tax | — | $37,512 | — |
| Payroll service and extra return | — | $2,500 | $3,500 |
| California corporate tax (8.84%, $800 minimum) | — | — | $35,569 |
| Federal corporate tax (21%) | — | — | $77,026 |
| Payroll and self-employment tax | |||
| Self-employment tax - Social Security | $22,878 | — | — |
| Self-employment tax - Medicare | $16,069 | — | — |
| Additional Medicare Tax (0.9%) | $2,737 | — | — |
| Social Security - employee half | — | $11,160 | $11,160 |
| Social Security - employer half | — | $11,160 | $11,160 |
| Medicare - both halves | — | $5,220 | $5,220 |
| California SDI (1.3%, no wage cap)Uncapped since 2024 - a draw never triggers it | — | $2,340 | $2,340 |
| California UI and ETT | — | $245 | $245 |
| FUTA | — | $126 | $126 |
| Federal | |||
| Federal income tax | $122,126 | $89,094 | — |
| §199A QBI deduction claimedPartly limited - you are inside the §199A phase-in range | -$11,390 | -$71,959 | — |
| Federal income tax on salary and dividends | — | — | $38,493 |
| Net Investment Income Tax on dividends3.8% - dividends are net investment income, S corp K-1 income generally is not | — | — | $2,846 |
| California personal | |||
| California personal income taxCalifornia taxes dividends as ordinary income - no preferential rate | $43,518 | $43,782 | $19,743 |
| Less PTE elective tax credit | — | -$37,512 | — |
| Money left in the company | |||
| Profit retained in the companyNot tax - shown because it is not yours yet | — | — | $144,882 |
| Tax deferred on that retained profitOwed when you take the money out - deferred, not saved | — | — | $38,807 |
| Total tax and cost, this year | $207,329 | $171,677 | $207,427 |
| Including tax merely deferredWhat a C corporation owes when retained profit finally comes out | $207,329 | $171,677 | $246,235 |
| Cash reaching you this year | $392,671 | $428,323 | $247,691 |
| §199A deduction claimed | $11,390 | $71,959 | Not available |
| Effective rate | 34.6% | 28.6% | 34.6% |
What your numbers are telling you
- Sole proprietor. The SALT cap wastes $37,776 of the state and property tax you paid. A sole proprietor cannot elect California's pass-through entity tax, so there is no way to recover it.
- S corporation. The PTET election is worth about $9,463 a year to you. That is the whole reason an S corporation can beat a sole proprietorship in California - a sole proprietor is not allowed to make this election.
- C corporation. C corporation profit is taxed twice: once at the company and again when it reaches you. No §199A deduction applies, and California charges 8.84% at the entity on top of the federal 21%.
- C corporation. $144,882 stays in the company this year, so it is not in your pocket and it is not counted as cash to you above. Taking it out later costs roughly $38,807 more in tax, and profit parked beyond the needs of the business can draw the accumulated earnings tax.
What this does not model
Every one of these has flipped a real entity decision. A calculator that pretends otherwise is selling you a number, not an answer.
- Your exit. Qualified small business stock under §1202 can exclude millions of gain on a sale, and only a C corporation can issue it. If you might sell, that one fact can outweigh everything on this page.
- Retirement contributions. A solo 401(k), SEP, defined benefit plan, or cash balance plan changes the answer, and the contribution room each entity gives you is different.
- Health insurance and fringe benefits. A C corporation can deduct benefits a pass-through owner cannot, which narrows the gap.
- More than one owner. This models a single owner. Partnerships, unequal allocations, and trusts as owners all behave differently.
- Anywhere but California. Multi-state apportionment, out-of-state employees, and other states' entity regimes are all outside this.
- Losses and basis. Basis limits, at-risk rules, and passive loss rules can strand a deduction entirely.
- The accumulated earnings tax. A 20% penalty on C corporation profit held beyond the reasonable needs of the business. The deferred figure above assumes you eventually distribute; this tax assumes you did not have a reason to wait.
- The cost of changing. Built-in gains, S election timing, five-year re-election waits, and the plain work of converting. None of it is free.
Where the numbers come from
- Federal, tax year 2026
- Brackets, standard deduction, qualified dividend breakpoints and §199A thresholds from Rev. Proc. 2025-32. The §199A phase-in range is $150,000 for joint filers and $75,000 for everyone else for 2026, wider than it was through 2025, and there is a new $400 minimum deduction.
- Payroll
- 2026 Social Security wage base of $184,500, per SSA and IRS Topic 751. Additional Medicare Tax and net investment income tax thresholds are statutory and never indexed. FUTA is shown at California's effective rate for 2025 (California credit reduction of 1.2%; 2026 is set in November 2026).
- SALT cap
- $40,400 for 2026, reduced by 30% of modified AGI over $505,000, never below $10,000. Per the IRS 2026 Form 1040-ES correction. At the incomes this tool is built for, the cap sits on its floor - which is exactly why the entity-level election matters.
- California personal, tax year 2025
- California has not published 2026 brackets yet. The Franchise Tax Board sets them from the June-to-June California CPI and publishes around September 2026, so this uses the 2025 rate schedules and says so rather than inventing a 2026 figure. Brackets shift a few percent a year, so treat the California column as close, not exact.
- California entity taxes
- 8.84% corporate, 1.5% S corporation, $800 minimum franchise tax, from FTB business tax rates. California allows no §199A deduction, and taxes dividends and capital gain as ordinary income.
- Pass-through entity elective tax
- 9.3% of qualified net income, available through 2030 - it did not sunset after 2025. Only an entity taxed as a partnership or S corporation can elect it. Nonrefundable, with a five-year carryover. Per FTB.
- California payroll
- State disability insurance is 1.3% for 2026 with no wage cap - all wages are subject since 2024. UI and the employment training tax stop at the first $7,000 per employee. Per EDD.
- What is assumed, not sourced
- One owner, a full year in California, material participation, and no retirement plan contributions. The two running-cost figures are estimates you can overwrite. Exemption credits are left out because they are fully phased out at these income levels.
The number is the easy part
A calculator cannot tell you what your salary should be, whether an election is worth the paperwork in your situation, or what a change does to your exit. That is a conversation. Bring these figures to it.