If you’re running a profitable small business in Fresno, chances are someone has told you to “become an S-corp.” But is it always the right move? Here’s an honest breakdown.
How LLCs Are Taxed
By default, a single-member LLC is taxed as a sole proprietor — all net profit flows to your personal return and is subject to self-employment tax (15.3% on the first ~$168K). A multi-member LLC is taxed as a partnership, with similar SE tax exposure for active members.
How S-Corps Save on Self-Employment Tax
An S-corp allows you to split your income into two buckets: a reasonable salary (subject to payroll taxes) and distributions (not subject to SE tax). The savings on distributions can be significant at higher income levels.
The California Wrinkle
California charges S-corps a 1.5% franchise tax on net income (minimum $800), and LLCs pay an annual $800 minimum plus a gross receipts fee. The S-corp election doesn’t eliminate California taxes — it just changes the structure. The net benefit depends on your income level and the added cost of payroll and compliance.
So Which Is Better?
It depends. Generally, the S-corp election starts making sense somewhere in the $50K–$80K+ net profit range, but the exact breakeven varies. There’s no universal answer — which is exactly the kind of analysis we do with clients at Harlan Willow Accounting Group before recommending any entity change.
Contact us for a free consultation — we’ll run the numbers for your specific situation.
