What California Form 100S (2023) Is For
California Form 100S is the state income tax return required for S corporations doing business in California for the 2023 tax year. While S corporations are pass-through entities at the federal level, California imposes a separate entity-level tax. As a result, S corporations pay state tax while still passing income, losses, and credits to shareholders.
This difference from federal rules makes California compliance more complex. Form 100S calculates the entity-level tax liability, reports shareholder pass-through items through Schedule K-1 (100S), and determines how much income is taxable to California using apportionment rules. The form also handles special taxes such as built-in gains and excess net passive income.
When You’d Use California Form 100S (2023)
You must file Form 100S if your S corporation is incorporated in California, registered with the Secretary of State, or meets the state’s “doing business” threshold. For 2023, those thresholds include California sales of more than $711,538 (or 25% of total), property over $71,154 (or 25% of total), or payroll over $71,154 (or 25% of total). Pass-through income from partnerships or other S corporations counts toward these tests.
File the form when completing a regular annual return, when submitting a late return under California’s automatic six-month extension, or when correcting a prior-year filing using Form 100X. You must also amend promptly if the IRS adjusts your federal return. California requires notice of final federal changes within six months, and missing this deadline removes the normal statute of limitations.
Key Rules or Details for 2023
Franchise Tax and Rates
S corporations pay the greater of 1.5% of net income or the $800 minimum franchise tax. Financial S corporations pay 3.5%. The minimum tax applies even when the corporation operates at a loss or is inactive, except during the first taxable year of incorporation or qualification.
Built-In Gains and Passive Income Tax
Corporations that converted from C to S status may owe built-in gains tax at 8.84% if they recognize gain on assets that appreciated during their C corporation years. Those with accumulated earnings and profits may also owe excess net passive income tax when passive income exceeds 25% of gross receipts.
Pass-Through Entity Elective Tax (PTE)
For 2023, S corporations may elect to pay a 9.3% entity-level tax on qualified net income. Shareholders receive a credit equal to their share of the elective tax, often helping them bypass the federal $10,000 SALT deduction cap. The election must be made on a timely filed original return and is irrevocable for the year.
California Nonconformity to Federal Law
California conforms to the Internal Revenue Code as of January 1, 2015. This means no bonus depreciation, no GILTI inclusion, different Section 179 limits, and no automatic adoption of major federal tax changes. Corporations must adjust federal amounts to compute California income.
Apportionment and Estimated Tax
California uses a single-sales-factor apportionment formula with market-based sourcing for services and intangible property. S corporations must also make quarterly estimated tax payments, including paying at least the $800 minimum by the first installment unless it is their first taxable year.
Step-by-Step (High Level)
Step 1: Gather Your Records
Collect your federal Form 1120-S, bookkeeping records, depreciation schedules, state adjustments, and apportionment data. Include documentation for built-in gains or passive income if relevant.
Step 2: Compute California Income
Start with federal ordinary income, then make California additions and subtractions. Adjust for depreciation differences, nonconforming federal items, and any credits or deductions treated differently under California law.
Step 3: Calculate Entity-Level Tax
Apply the 1.5% (or 3.5%) tax rate to California net income. If applicable, compute built-in gains tax or excess net passive income tax. Compare the result to the $800 minimum to determine your final tax liability.
Step 4: Complete Schedule K and K-1s
Prepare Schedule K using California rules, not federal amounts. Then prepare a Schedule K-1 (100S) for each shareholder, ensuring totals match Schedule K. Include required basis information.
Step 5: Determine Payments and Balance Due
Subtract estimated payments, extension payments, and any withholding. Consider PTE elective tax payments if the corporation made the election. Determine whether you owe additional tax or qualify for a refund.
Step 6: File Form 100S and Pay Any Tax Due
File by March 15, 2024, or by the automatic extension deadline of September 15, 2024. Remember that the extension applies to filing, not payment.
Common Mistakes and How to Avoid Them
- Ignoring the minimum franchise tax — Pay at least $800 unless it is your first taxable year.
- Late filing penalties — California charges $18 per shareholder per month, up to 12 months.
- Incorrect federal-to-California adjustments — Review depreciation, GILTI, and other nonconforming items carefully.
- Misapplying doing-business thresholds — Use updated 2023 figures and include pass-through amounts.
- Errors on Schedule K-1 — Ensure totals match Schedule K and follow California, not federal, basis rules.
- Failure to report federal changes — Notify California within six months to preserve the statute of limitations.
What Happens After You File
The Franchise Tax Board processes your return and issues either a refund or a Notice of Tax Due. Interest begins accruing from the original due date if tax remains unpaid. Penalties may apply for late filing, late payment, or incomplete shareholder information.
The FTB may select the return for audit, reviewing income, deductions, apportionment, and shareholder allocations. Audits can affect both the corporation and its shareholders, sometimes requiring amended S corporation returns and amended individual returns. After review, the FTB issues either a No Change letter or a Notice of Proposed Assessment, which you may protest if you disagree.
FAQs
Do we owe the $800 minimum franchise tax even if we had a loss?
Yes. Any S corporation doing business in California or registered with the state must pay the $800 minimum, except in its first taxable year. Loss years, inactive periods, and short-period returns do not change this requirement.
How does California taxation differ from federal S corporation rules?
Federal S corporations pay no entity-level income tax. California imposes a 1.5% (or 3.5% for financial S corporations) tax plus the $800 minimum, and shareholders still report their distributive share. California also requires adjustments because it does not conform to post-2015 federal tax law.
Should we make the PTE elective tax election for 2023?
The election can benefit shareholders limited by the federal SALT cap, but it is irrevocable and must be made on a timely original return. Review shareholder circumstances and projected income before deciding.
How do shareholders report their California S corporation income?
Shareholders use Schedule K-1 (100S) to report their share of income, deductions, credits, and adjustments. California residents report all income on Form 540, while nonresidents file Form 540NR for California-source items.
How is income apportioned when we operate in multiple states?
Use Schedule R to apply California’s single-sales-factor formula. Service and intangible receipts are sourced to California based on where customers receive the benefit. Some income, such as property sales, may be directly allocated to California.
