Corporations are taxed federal and state in California, roughly 40% combined together. You get credit for the state taxes against the federal taxes. When you do an S corporation in California, there’s a very small tax. The taxation of the income that is left over at the end of the year goes to the shareholders proportionate to their shareholding interests. Both the income and the losses are proportionate to shareholding interests. It is not the same as an LLC where you can move that around (someone who has no money invested in the company will not get any of the income or losses while someone who put their money in gets all the income or losses for some period of time to make up for the investment they have made). You cannot do that in an S corporation. There are a series of rules you have to follow in order to file an S corporation. One of them states that you have 75 days from the time you incorporate to actually file Form 2553, which makes you an S corporation. You cannot convert from a C corporation to an S corporation more than once every 5 years. There are a whole series of other hoops that you have to jump through. You can’t have a foreign resident as a shareholder in this corporation. You have to be somebody who pays taxes in the United States. If you are thinking about doing an S corporation, make sure to talk to your accountants about the pros and cons and whether or not you qualify.
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