The corporation costs $800 before you see a client.

The floor

Picture the worst year you can plausibly have. A referral source dries up, you take three months off, the practice makes almost nothing. As a sole proprietor that year costs you nothing in entity tax, because there is no entity.

As a corporation it costs $800.

That is the whole of it. Not a tax on profit, not a fee scaled to revenue — a floor. The franchise tax is the greater of 1.5% of net income or $800, so the $800 is what you pay in every year the 1.5% comes to less.^[2]

At what profit does the 1.5% overtake the floor? Divide: $53,333. Below that the corporation charges you $800; above it, 1.5% of everything.

The first-year rule everyone states backwards

You will read that your first year is free. It is half true, and the half that is wrong is the half that costs money.

The exemption is real: “newly incorporated or qualified corporations are not required to pay the minimum franchise tax in their first taxable year”.^[1] But it exempts you from the minimum only — not from the tax itself.

So a first-year corporation that made $90,000 does not pay $0. It pays $1,350, and it pays it on time. What the exemption saves is the $800 you would have owed if you had made nothing.

There is a second half to this that catches people harder. Estimated tax payments are required from the first year, not from the second — the Board expects corporations to pay in as they go, whatever their history.^[3] A first year spent assuming nothing is due arrives at April with a bill and a penalty.

A note on why the LLC rule does not apply to you

Much of the confusion here is imported from a different entity. California waived the LLC annual tax for first-year LLCs under Assembly Bill 85 — and that waiver expired. Articles written in 2022 said “first year free”, articles written in 2024 said the opposite, and both were about LLCs.

None of it is about you. A California therapist cannot form an LLC for licensed practice at all,^[4] so the only first-year rule that applies is the corporation one above, which is not scheduled to expire. Why the LLC is closed to you →

The costs that are not the franchise tax

The $800 is the visible one. Three more arrive with it, and only one of them is usually counted.

• Payroll on your own wage. A corporation that pays you is an employer. California charges State Disability Insurance at 1.3% of the whole salary with no cap since 2024, plus Unemployment Insurance, ETT and FUTA on the first $7,000. On a $96,000 salary that is $1,248 and $287. A sole proprietor pays none of it. The $1,248 in full →
• A corporate return. Form 100S is not a Schedule C, and it is not the sort of thing most therapists file themselves.
• A payroll service. Running one employee through payroll monthly is a subscription you did not previously have, and doing it by hand is how reasonable-compensation problems start.

The one figure I have seen put on the whole running cost comes from Heard, an accounting firm working only with therapists: roughly $4,400 a year, with a floor of $100,000 of annual net income before the election is worth making at all. That is one firm's number rather than a rule, and it is quoted here as such.

So when does it pay

The honest answer is that it depends on a number this page does not have, and neither does any other page written for a general audience: your profit after expenses, and the salary you would actually pay yourself.

What can be said without your numbers is the shape. The saving grows with the distribution you take. The cost is mostly fixed — $800, a return, a payroll service — with one part that scales, the 1.5%. Fixed costs against a growing saving is a curve with a crossing point, and below that point incorporating loses money with perfect reliability.

Which is why there is a calculator below rather than a verdict here.