New York is an important state for business in the United States. Many of the biggest corporations have locations in New York City as well. It’s an exciting place to be, but that doesn’t mean it’s easy for businesses.
Business owners looking to establish a small business in New York will need to be aware of all the state taxes and regulations that come with setting up shop in New York.
The federal income tax will be the same no matter where you go in the United States, but each state has its own tax policies as well. In New York, those policies will depend a lot on what kind of entity your business is.
If you expect to be preparing to file a small business tax return in New York anytime soon, learn more about state tax requirements here.
Corporate Taxes in New York
All corporations in New York must pay a corporation franchise tax. If you plan to form a C-Corp in New York, you will need to learn how to calculate this to pay your state corporation tax.
Many big corporations find ways to artificially keep their tax rate low, so New York’s state requires corporations to calculate their franchise tax four different ways and pay the highest of the four. This is intended to fairly assess your tax base and stop companies from exploiting loopholes, but it also makes the process more complicated and confusing for business owners. Here are the four options:
- Net income taxed at 7.1% (or 6.5%, depending on total net income)
- Business capital taxed at 0.15%
- Minimum taxable income taxed at 1.5%
- Fixed dollar minimum tax with flat rates on gross income.
S-Corp Taxes in New York
Corporations with fewer than 100 shareholders can apply with the IRS to be recognized as an S-Corp business entity for federal tax purposes. This means the S-corporation will not be subject to the corporate tax rate at the federal level, and shareholders will file business income solely on their personal tax returns.
States vary in how they tax S-Corps, but New York does not exempt S-Corps from paying corporate taxes. S corporations in New York must pay the corporate franchise tax, but they are allowed to pay somewhat lower tax rates than other corporations.
LLC Taxes in New York
A limited liability company is a business entity that protects members from liability while offering flexibility in filing status. Members of an LLC usually pay federal income taxes only at the individual level. However, they can also file an LLC as a partnership or a corporation for federal tax purposes.
State taxes on an LLC in New York similarly depend on how the LLC chooses to be classified. If an LLC files as a corporation, it will be subject to the corporate tax rate in New York. Any other LLC not filed as a corporation in New York will instead pay a state filing fee. This filing fee is an annual payment set according to a company’s gross income.
The filing fee for LLCs and LLPs in New York is $25 for any company with $100,000 or less in gross income. The fee goes up as gross income goes up, with a maximum filing fee of $4,500 for companies with a gross income of more than $25 million in the previous tax year.
Partnership Taxes in New York
Partnerships in New York are taxed similarly to LLCs. If your business entity is a partnership, you don’t pay taxes at the corporate level. Still, the income passes through to the individual owners of the partnership and their personal tax returns.
Like all business owners, partnership owners will need to pay state income taxes on their personal returns. However, with a partnership, you may also need to pay the state filing fee. Fortunately, only partnerships with a gross income higher than $1 million have to pay the filing fee.
Sole Proprietorship Taxes in New York
With a sole proprietorship as your business entity in New York, you don’t need to worry about any specific New York state taxes on your business. As the lone owner of your business, all of your business income counts as personal income for your tax return, and you will pay taxes according to your personal rate.
The personal income tax rate in New York uses tax brackets based on the level of income, just like the federal system. The tax rate starts at 4% for income up to $17,150, and the rate will go as high as 8.82% for income starting at $2,155,350.
If you work and earn wages in multiple states, you may need to file a tax return with multiple states as well, assuming that each of those states collects an income tax. You should pay taxes in each state according to the income you earned in that state.
Whereas federal and state taxes effectively tax the same income, the same income cannot be taxed by multiple states at once.
The New York state W-2 does not clearly separate wages and tax withholding by state, which means you will need to calculate yourself on your tax returns to figure out what you owe to each state.
Registering with the State
In New York, businesses can handle nearly all of their state tax obligations online once they have a business online services account. You can create an online services account on the state website and start receiving and paying bills on that same platform.
New York requires businesses that have the capacity to file and pay taxes online. Once registered, then you can use your business account online to handle estimated tax withholding for employees, annual tax returns, sales tax, and more.
New York Sales Tax
You can register for charging and remitting New York sales tax through your business online services account. Once registered, sales tax filing is required regularly, depending on the reporting period you set. File sales tax returns, even if you made no sales in that period.
The sales tax rate for the state of New York is 4%, but local and municipal taxes will vary widely. Make sure you consult local regulations or a sales tax calculator. New York property tax will also range depending on your area.
Find an Accountant to Help
A local accountant with tax expertise will know better than anyone how to handle taxation and finance requirements in New York or wherever you establish your business. Don’t hesitate to get help from a professional to ensure you understand your obligations and how to comply.