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Comment by tptacek | Hacker News Reader

Um, I'm not a CPA, and I definitely don't know how California taxes work, but at the federal level, isn't that (taxation at the corporate level) pretty much the opposite of how an S-Corp works?

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An S-Corp just avoids double taxation. Salaries paid out are subject to FICA. As for the remaining business income, each shareholder would still owe taxes based on how much of the business they own. This is different than a C-Corp where the business income would be taxed at the corporate level in addition to the owners paying income tax on their salaries. And if the owners of a C-Corp decided to pay themselves huge dividends to avoid normal income taxation, that would raise red flags.

In California, S-Corps pay a 1.5% franchise tax on net income (minimum $800). You pay this even if your net income is zero or negative. You pay this no matter what.

Disclosure: I'm also not a CPA.

Yeah, Alex, I'm just saying: S-Corps don't pay federal corporate taxes, do they? I thought that was the point of an S-Corp. Your comment, before you edited it, said flat-out that they did.

(We file as S, but thankfully I'm not the person here that has to know exactly how this stuff works. See previous comments for evidence that you should not take tax advice from me.)

Right, yeah, looks like S-Corps don't pay federal corporate taxes. I knew it was to avoid double taxation but I had forgotten which taxation S-Corps were exempt from. My bad. Unfortunately, for California, you owe the 1.5% (minimum $800) franchise tax on company income whether you're an LLC or S-Corp or C-Corp. In NYC, you are subject to the full corporate income tax rate, even as an S-Corp.

That explains why I suddenly had to start paying NY taxes, even though I live in Illinois (we started filing differently).

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