A contractor's business is organized as an S corporation. A key financial feature of an S corp is that:
Explanation
An S corporation is a pass-through: under IRC §1366 income and loss land on the shareholders' own returns, so there is no second layer of federal corporate tax. It is not tax-free in California, which charges an S corporation a 1.5 percent franchise tax on net income under Revenue and Taxation Code §23802(b). Double taxation at entity and shareholder level is the C corporation pattern, which the S election exists to avoid. And the $800 minimum franchise tax under §23153 is owed whether or not the year was profitable.
Law Reference: IRC §1366; Rev. & Tax. Code §23802(b); §23153This topic, taught in full in the CSLB Law & Business guide. CSLB Law & Business — Complete Study Guide (2026) — PDF + EPUB, $24.99 · 14-day refund →
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