Choosing between an LLC or S-Corp in California is one of the first questions a contractor has when the business grows. Each structure changes how you pay taxes, how much it costs to maintain, and how well your assets are protected.
This guide compares the 4 options with California numbers. At the end you get a list of steps for this week.
In short
- A DBA is only a business name; it does not protect your personal assets.
- An LLC generally protects your assets, and pays at least $800 a year to the FTB.
- An S-Corp is not an entity, it is a tax election. It can save you money if your profit is high enough.
- The C-Corp pays its own tax and dividends are taxed again.
- An LLC with a CSLB license needs an additional $100,000 bond and liability insurance.
Comparison table: the 4 structures
| Structure | Does it protect your assets? | How it pays taxes | Minimum annual cost in CA |
|---|---|---|---|
| DBA (sole proprietor) | No | On your personal return (Schedule C) | County name registration |
| LLC | Yes, in general | Like you, unless you choose to become a corporation | $800 + fee if gross income > $250,000 |
| S-Corp (LLC or corporation) | Yes, in general | The profit goes on your tax return; you get a paycheck through payroll | 1.5% of profit, $800 minimum |
| C-Corp | Yes, in general | The corporation pays its own tax; dividends are taxed again | $800 minimum |
Best for: the DBA, someone starting alone with low risk. The LLC, someone who wants protection without much paperwork. The S-Corp, someone who already has steady and sufficient profit. The C-Corp, someone looking for investors or planning to reinvest a lot. For more context, see the IRS guide on business structures.
DBA: just a business name
The DBA ("doing business as") lets you use a business name, like "García Painting." But you are still you.
If the business owes money, you are responsible with your personal assets: your house, your truck and your savings.
LLC: protection with little paperwork
An LLC (limited liability company) keeps your personal assets separate from the business. By default, the IRS treats it as you (one owner) or as a partnership (several owners).
These are the costs in California, according to the FTB:
- $800 minimum annual tax to the FTB.
- Additional fee if gross income is over $250,000. The fee goes up by income level.
- Statement of Information (a report with your details for the Secretary of State) every 2 years.
CSLB requirements for an LLC
If the contractor license is in the LLC's name, the CSLB requires:
- $25,000 license bond.
- Additional $100,000 bond for employees and workers.
- Liability insurance of at least $1 million with 5 people or fewer, $100,000 more for each additional person, up to $5 million.
Confirm these amounts with the CSLB before you file, because they can change.
C-Corp: for investors or for reinvesting
The C-Corp pays federal and state tax on its profit. If it pays you dividends, you pay tax again.
It is more common in companies that look for investors or that reinvest almost everything. For a contractor who lives off the profit, it is usually less practical.
LLC or S-Corp in California: the S-Corp is a tax election
An LLC or corporation can choose to be taxed as an S-Corp with the IRS. You pay yourself a reasonable salary (what you would pay someone else to do your job) through payroll.
The rest of the profit can come out as a distribution, without self-employment tax (the tax on people who work for themselves). In California, the S-Corp pays 1.5% of its net profit to the FTB, with a minimum of $800.
Example: a contractor with $90,000 of profit
Picture a contractor with $90,000 in net profit. Compare a regular LLC with the same LLC taxed as an S-Corp.
| Item | Regular LLC | LLC taxed as an S-Corp |
|---|---|---|
| Profit | $90,000 | $90,000 |
| Owner's salary through payroll | Not applicable | $50,000 |
| Self-employment or payroll taxes | about $12,700 | about $7,650 |
| California tax on the company | $800 | about $1,350 (1.5%) |
| Extra costs (payroll, 1120-S, tax preparer) | $0 | about $2,500 to $3,500 |
The gross savings on work taxes would be about $5,050. Subtract about $550 more in California tax and the extra costs.
You would keep about $1,000 to $2,000 a year. If your profit were $50,000, it probably isn't worth it.
These are approximate, illustrative numbers; they do not include income tax. Your tax preparer must calculate your case. Read how to pay yourself as an owner.
LLC or DBA: which protects more
The LLC. On the DBA vs. LLC question, a DBA does not create a separate entity.
But remember: the LLC does not protect you if you sign personal guarantees or mix accounts. No paper replaces good insurance. Review the limits in LLC corporate record book and on our protection page.
Basic steps to set up your construction business structure
- Choose the name and confirm it is available.
- File the Articles of Organization (LLC) or Articles of Incorporation (corporation).
- Prepare your operating agreement or bylaws.
- Get your EIN (the business's tax ID number).
- File the Statement of Information within 90 days.
- If you are a contractor, get the CSLB license for the entity.
A lawyer or a partner formation service does the formation; ODC does not form LLCs. After that, continue with you formed your LLC: next steps. You can also see our LLC page.
$800 tax to the FTB and other charges
LLCs and corporations pay the $800 minimum tax every year, even if they do not make money. The FTB explains it this way.
If you close the company, you must dissolve it formally; if not, the charge continues.
Suspension of an LLC or corporation
If you do not pay the FTB or do not file your returns, the FTB can suspend your company. See what this means on the FTB page about suspended businesses.
A suspended company cannot sign valid contracts or defend itself in court. And the CSLB can affect your license.
Common mistakes when choosing a structure
These slip-ups are common among contractors. Almost all of them can be avoided with a timely conversation with your tax preparer.
- Choosing S-Corp too soon. With low profit, payroll costs and the 1120-S return can outweigh the savings.
- Mixing accounts. Paying personal expenses from the LLC account weakens the separation you're looking for.
- Forgetting the $800 minimum. It's due every year, even if the company didn't make money.
- Not updating the license. If you change your structure, the CSLB license must be in the name of the right entity.
How keeping your books up to date helps
Imagine your tax preparer asks you for your net profit for the last 2 years. This is an illustrative example, but it happens a lot.
If your books are up to date, the answer takes minutes. Bookkeeping (keeping your business books) gives you the numbers to decide calmly. ODC doesn't prepare taxes or form LLCs; independent partners do that work.
What to do now
- Write down your net profit for the last 2 years.
- Check whose name your CSLB license is under.
- Ask your tax preparer for a comparison using your numbers.
- Check your record with the FTB to confirm you have no overdue payments.
FAQ
Does a DBA protect me like an LLC?
No. A DBA is just a trade name that lets you operate under another name. It does not create a separate entity, so you are still the one who answers for the business's debts with your personal assets. To separate your assets you need an LLC or a corporation.
When does an S-Corp make sense?
When the profit is enough to pay you a reasonable salary and still save on self-employment tax, after adding the extra payroll and tax return costs. It is not the same for everyone. Your tax preparer can calculate it with your numbers.
Do all LLCs pay $800 a year in California?
Yes, in general LLCs and corporations pay an annual minimum tax of $800 to the FTB, even if they did not make money. LLCs with more than $250,000 in gross income also pay a fee that goes up by income level.
When to talk to a professional
This article is a general guide. If your case involves a letter from the IRS, the FTB or the EDD, a lawsuit, an accident or a change in your business structure, talk to a lawyer, a tax preparer (CPA or enrolled agent) or the official agency. Every case is different.
How ODC helps you
At Oficina del Contratista we keep your bookkeeping up to date: we record your income and expenses, reconcile your accounts and explain your reports in Spanish. For taxes, payroll, insurance or legal matters, we connect you with independent partners; they provide those services, not ODC. See all services.
Not sure which structure fits you? We connect you with partner enrolled agents and attorneys. Message us on WhatsApp.
References
- IRS – Business structures — Types of structures and how each is taxed
- IRS – S corporations — S-Corp election and reasonable salary
- FTB – Limited liability company — $800 minimum tax and LLC fee
- FTB – S corporations — 1.5% of the S-Corp, $800 minimum
- FTB – My business is suspended — Suspension of businesses
- CSLB – LLC licensing — Bonds and insurance for LLCs
Runs Oficina del Contratista, a Spanish-language bookkeeping service for contractors. Has experience in management, sales and construction consulting.
Important notice: this article is educational and informational only; it is not legal or tax advice. It may contain errors or be out of date. Before making decisions, check it with a licensed expert or attorney.
