Tax expectations for new business owners in New York

On Behalf of | Mar 10, 2021 | Business Formation |

Business owners in New York enjoy several benefits that owners in other places do not possess. The state’s most populated city is seen by many as the business epicenter of the world. But there are potential downsides to starting a new business in New York also. One of them is a business tax code that many analysts say is complex and expensive. Tax responsibilities for each business owner will differ according to the structure chosen for the business.

Sole proprietors

Business owners who value autonomy and wish to minimize complications may select to become sole proprietors during the business formation and planning process. Sole proprietors are not subject to the fees and taxes that corporations must pay. Owners of sole proprietorships must pay income taxes on business earnings that range from 4% to 8.82%.

Partnerships

Friends and business associates who initiate a business venture together will need to pay a filing fee. Each member of a partnership must pay income taxes on their share of the business earnings.

Limited liability companies

Several possible tax classifications exist for LLCs. Options include partnerships, corporations, and disregarded entities. LLCs classified as corporations are subject to the corporation franchise tax. Other types of LLCs must pay state filing fees based on the income generated by the company.

Corporations

Most small businesses do not begin as corporations. But this type of growth is possible for many business owners. The corporate franchise tax computation methods used by the state can be complicated. New York State also takes a proactive approach at closing the loopholes business owners use in other states to avoid paying taxes.

Tax implications are a relevant consideration for all new business owners. An attorney experienced with business law might help clients choose the business structure that best minimizes their tax liability.