Consultants & Agencies: S-Corp Timing and the $250k Tripwire

What to know

• $250k CA receipts = first $900 fee; project by May, prepay by June 15.
• S election at ~$100k+ profit typically wins; add payroll costs honestly.
• Multi-member shops: March 15 568 deadline, not April.

The $250,000 tripwire

Service businesses cross California's first LLC fee tier fast. At $250,000 of California receipts the fee jumps from $0 to $900; at $500,000 to $2,500; at $1 million to $6,000. Agencies that pass contractor costs through to clients feel it most, because pass-through revenue still counts as receipts.

Timing the S election

To be an S-corp for a full calendar year, file Form 2553 by March 15. An election that takes effect mid-year splits the year into two short tax years with separate returns and starts payroll from the effective date. Plan the election in the fall for January 1 rather than discovering the fee in June.

Multi-member shops

An agency with two or more owners files federal Form 1065 and California Form 568 by March 15, not April 15, and issues K-1s to each member. Nonresident members sign FTB 3832 consenting to California tax, or the LLC withholds on their behalf.