New York business tax – Complete Guide
When you start a new business in New York, there are several aspects to consider, especially maintaining compliance with all state requirements. One of the important requirements is that of New York business tax, which can vary according to the type of business and type of tax. Hence, we have created this guide to provide information pertaining to the different taxes that are levied in the state and the way different businesses are taxed like New York LLC taxes are different from that of a corporation.
New York Business Tax
Once you register or incorporate a new business in New York, you will be required to file New York business tax returns annually. When we talk of business taxation, it essentially refers to taxes that any existing or new business has to pay as a part of their business operations in the said state. As a business owner or a company, the type of taxes can vary and a single organization might need to file multiple taxes. As an example, a newly incorporated company may have to file New York corporation taxes as well as sales and use tax. It is also important to note that you need to apply for and obtain an Employer Identification Number (EIN) from the IRS as this will assist you in filing tax returns
What taxes do businesses pay in New York?
Whether you form a sole proprietorship, an LLC ,or a business corporation, each type of entity will have different tax statuses. If you are planning to start a small business then managing your New York business tax is one of the several expenses that your company might need to undertake. The amount of tax applicable for your business will depend on the type of tax and can often require the use of a New York business tax Calculator. There are three categories of taxes essentially and they are federal, state, and local taxes and the amount of tax you pay will be considered as your tax liability. Let’s try and understand the different taxes applicable to businesses in the state of New York.
Different states have different types of taxes and one of the common forms of taxes is the franchise tax. There is franchise tax in New York apart from some other states including Georgia, Texas, Illinois, and Mississippi among others. In the state of New York, the franchise tax is also known as the corporation franchise tax and it is applicable to both the traditional C Corporations and S corporations. This type of New York corporation tax is applicable to both domestic and foreign business entities. Corporate taxpayers in the state of New York have to pay taxes equal to the highest amount as calculated considering three types of tax bases in addition to the Metropolitan transportation business tax (MTA surcharge). These are:
- Business income
- Capital base
- Fixed dollar amount
The New York State business income takes into consideration the following for tax purposes:
- Income from any non-New York bonds
- Royalty payments made to related parties
- Depreciation adjustments
The franchise tax in New York is due on or before April 15 annually and the return has to be filed within 3 ½ months after the end of the reporting period or fiscal year. The New York corporation taxes have to be filed using form CT-3 (General Business Corporation Franchise Tax Return). The returns have to be filed with the NY Department of Taxation and Finance and you can even file it electronically while using state approved e-file tax software.
NY State income tax
One of the important taxes that may apply to your business is the income tax. This is a type of New York business tax that is payable on the income derived by you or your business in the state. This also includes a form of tax that is known simply as the filing fee or an estimated income tax and is applicable to LLCs, limited liability partnerships (LLPs), and some regular partnerships.
It is important to note that in certain businesses like single member LLCs or sole proprietorships where the earned income is passed through to you then income will be subject to taxation and you will be required to file a personal New York tax return.
This type of New York business tax is also applicable for self-employed workers and independent contractors. You have to use a New York business tax Calculator to know the amount of tax based on a rate that can vary from 4.00-8.82%.
NY State sales tax
One of the most important forms of business tax apart from the franchise tax in New York is the sales tax. It is also often known as the sales and use tax. The NYS sales tax is applicable to companies that are involved in the retail sales of certain tangible personal property as well as services. The use tax on the other hand is applicable if you or your business is buying specific tangible personal property or services outside the New York state but are planning to use it within the state.
You will need to use a New York business tax Calculator to derive the tax amount as the combined sales and use tax rate is currently 4%. There can also be an additional local tax rate that is imposed by certain cities, a county, or even a school district. There is also an additional sales tax rate of 0.375% applicable to taxable sales that have been made within the Metropolitan Commuter Transportation District (MCTD). The combined rates for this type of New York business tax can vary according to the county or city that your business is based in or operating from.
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.
Ready to Incorporate your New York Company?
Whether you are planning to form a limited liability company (LLC), or a C Corporation in New York, the new business formation process can be quite extensive, and time consuming. This is where IncParadise can provide meaningful assistance as we are an expert incorporation service provider in New York and help to register your LLC or corporation in New York.
Once you have formed a new business there are several annual state requirements and compliances you will need to fulfill. Hence, IncParadise offers several additional services like S Corporation filing, foreign qualification, and filing DBA among others.