How New York Businesses are Taxed?
If you are thinking of starting a new business in New York then you need to consider the taxes applicable in the state. There are different types of taxes including franchise tax in New York and these taxes vary from one form of business to another. Some businesses may need to file only NYS income tax while others may need to file multiple taxes like New York LLC taxes may not be applicable for sole proprietorships or corporations. Let’s look at the different types of entities and their taxations.
Taxes for LLC
A New York LLC is considered similar to S corporations when it comes to taxes. A Limited Liability Company enjoys pass through taxation, which means that the income earned is passed through to the owners or members and they are required to file a personal income tax return on it. This is one of the types of New York LLC taxes and the rate can vary from 4.00-8.82%. You will be required to file a New York resident tax return or Form IT-201 and if you are a non-resident then you will be required to file Form IT-203.
New York LLCs are not required to file any federal New York business tax or state income tax. Instead, they have to pay filing fees that are in accordance with their gross income and can vary from a minimum of $25 to a maximum of $4,500 in New York LLC taxes.
Example: If the gross income of your New York LLC is less than $100,000 then the NY LLC filing fees would be $25. If the gross income is over $250,000 but under $500,000 then the fee is $175 and for incomes more than $25,000,000, the fee would be $4,500.
It is important to note that if your LLC is involved in retail sales of certain tangible personal property and services then you will be required to file sales tax. This type of New York business tax comprises a city sales tax rate of 4.5% and NY state sales and use tax of 4%.
Taxes for C Corporation
A C corporation is a traditional corporation and it will be subjected to a franchise tax in New York. This type of tax is also known as a privilege tax, which you essentially pay to conduct business in this state. In order to calculate and pay franchise taxes, you will need the help of a New York business tax Calculator and fill out Form CT-3 or New York corporate tax return.
There is a process to calculate New York corporation taxes and you have to calculate three different amounts, which are:
- The tax on business income – This is known as the federal taxable income (FTI) and will be the starting point for calculating your New York corporation taxes using business income. The rate for most businesses is 6.5% although a lower rate of 4.875% may be applicable if your entity is considered a qualified emerging technology company (QETCs).
- The tax on capital – This type of tax is based on the total business capital base, which is considered as the fair market value (FMV) of all your assets as well as investments owned by the business in New York State. The New York corporation taxes rate for most businesses is 0.025%.
- The fixed dollar minimum tax – This tax is also used for the calculation of franchise tax in New York. The tax is calculated based on New York State receipts or money earned while conducting business in this state.
Example: If the total New York receipts for your company are less than $100,000 then the fixed dollar minimum tax will be $25. Similarly, if the total New York receipts are more than $25,000,000 but less than $50,000,000 then the fixed dollar minimum tax will be $5,000.
Apart from the franchise tax in New York, your C Corporation may also be subjected to sales tax or sales and use tax.
Taxes for S Corporation
If you plan to form an S Corporation in New York then for tax purposes, it enjoys pass through taxation. This simply means that the income earned by the company will be passed through to the owners or directors and they will be required to file a personal income tax return on it. The rate of New York business tax on personal income will vary from 4% to 10.9%.
In New York, S Corporations are also required to file franchise tax just like C corporations. The method taken into consideration to file franchise tax in New York by S Corp is the gross receipt method. As a result, your company will be taxed at a lower rate as compared to traditional C corporations. It is important to note that if your corporation owes in excess of $1,000 in franchise tax post credits then you will be required to file estimated tax. This type of New York corporation taxes are filed using forms CT-400 for Estimated Tax for Corporations and payments have to be made quarterly.
Taxes for Sole Proprietorship
A sole proprietorship is also known as a sole trader business and comprises a single owner. It is an unincorporated business where New York business tax is paid as personal income tax on the profits earned by the company. The personal income tax rate varies from 4% to 10.9% in the state. If you are a New York resident then you will need to file the returns using Form IT-201 and non-resident or part-year resident owners will have to file taxes using Form IT-203.
Taxes for Partnerships
There are different types of partnerships that you can form in New York including a limited liability partnership (LLP) and general partnership. As a rule, a partnership doesn’t pay any income tax or New York business tax directly on its income. Instead, the income is passed through to the partners and has to be filed in the income tax return or franchise tax return of each partner. You will be required to file Form IT-204 for Partnership Return. A Partnership company may also be required to file an annual filing fee and pay estimated income tax on behalf of specific partners.