What Is Form 40? California S Corp Filing Requirements

An S corporation in California reports financial activities to the Franchise Tax Board (FTB) using Form 100S, the California S Corporation Franchise or Income Tax Return. This form details the corporation’s annual income and deductions and is used to compute its tax liability. Unlike a C corporation, an S corp is a pass-through entity, where most income and losses are passed to shareholders for their personal returns. However, California imposes an entity-level tax on S corporations, which is calculated and paid via Form 100S.

Determining Filing Requirements

An S corporation must file Form 100S if it is incorporated, organized, or registered with the California Secretary of State to transact business. The requirement also applies to any S corporation “doing business” in the state, regardless of its registration status. A return must be filed even if the corporation is inactive or operates at a loss.

The definition of “doing business” is met if the corporation actively engages in any transaction for financial gain. California also uses economic nexus standards to define this status. For the 2024 tax year, an S corporation is doing business in California if its sales in the state exceed $735,019, its real and tangible personal property exceeds $73,502, or its payroll compensation exceeds $73,502. These thresholds are indexed for inflation and adjusted annually.

Due to these rules, S corporations with no physical office or employees in California may still have a Form 100S filing requirement if their sales into the state are substantial. An entity that receives income derived from sources within California is also required to file a return.

Information and Documentation for Form 100S

To prepare Form 100S, you will need the corporation’s identifying information. This includes its legal name, mailing address, California corporation number, and Federal Employer Identification Number (EIN). This information must match state and federal records to avoid processing delays.

The financial data for Form 100S is linked to the corporation’s federal tax return, Form 1120-S. Figures from the federal return, including ordinary business income or loss, net rental real estate income, interest, dividends, and royalties, must be reported on the California form. If the corporation operates both inside and outside of California, it must complete Schedule R to apportion its business income and determine the share subject to California tax.

A calculation on Form 100S is the corporation’s tax. California’s franchise tax on S corporations is the greater of two amounts: a flat $800 minimum franchise tax or 1.5% of the corporation’s net income. Every S corporation doing business in California must pay at least the $800 minimum tax, even with no net income for the year. An exception exists for newly formed S corporations, which are not subject to the minimum tax in their first taxable year but still pay the 1.5% tax on net income.

Detailed information for each shareholder is necessary to complete Schedule K-1 (100S), which reports their pro-rata share of the corporation’s income, deductions, and credits. The schedule requires each shareholder’s name, address, and ownership percentage. This information is then used by the shareholders to complete their individual California income tax returns.

Filing Procedures and Deadlines

The standard deadline for filing Form 100S is the 15th day of the third month following the close of the corporation’s taxable year. For corporations operating on a calendar year, this due date is March 15. If the date falls on a weekend or holiday, the deadline moves to the next business day.

If a corporation needs more time, an automatic seven-month extension to file is granted without a written request. An extension provides additional time to file the return, not to pay the tax. To avoid penalties, the corporation must estimate its tax liability and pay any amount owed, including the minimum franchise tax, by the original due date using Form FTB 3539. If no tax is due, no form is needed to receive the extension.

Corporations can submit the completed Form 100S by mail to the address specified in the form’s instructions. The FTB also offers an electronic filing option through its CalFile system, which can lead to faster processing.

The FTB provides several payment methods. Taxpayers can use FTB Web Pay to authorize a direct transfer from a bank account. Payments can also be made by credit card through third-party services, which may charge a convenience fee, or by mailing a check with the appropriate payment voucher like Form FTB 3586.