LLC Taxes: A Comprehensive Guide for Business Owners in New York
If you are a New York business owner looking for legal counsel on LLC taxes, then this article is for you3 min read
If you are a New York business owner looking for legal counsel on LLC taxes, then this article is for you. LLC taxation requires specialized knowledge of the relevant state and federal laws. Understanding how LLC taxes work is essential if you want to make sound business decisions and stay in compliance with the regulatory laws. Here, we will discuss the ins and outs of LLC taxation in New York and provide tips for navigating this intricate process.
An LLC (Limited Liability Company) is a hybrid legal form—a combination of corporation and partnership—created to provide a “person” the same benefits of both. It is the most popular type of business entity because it provides personal liability protection for its owners while also allowing them to enjoy an advantageous pass-through tax structure. It is one of the most flexible business entities and is popular for both small and large businesses.
Under the Internal Revenue Code, LLCs in New York can elect for pass-through taxation or be treated as a traditional corporation. Pass-through taxation means the LLC’s federal income is channeled from the business to the owners to pay taxes. In New York, the default tax structure of an LLC is called the “flow-through” taxation where all the income, losses, credits, and deductions are passed-through directly to the owners of the LLC. This means that the LLC itself does not pay taxes.
In New York, LLCs must pay the Franchise Tax and the Metropolitan Commuter Transportation Mobile Surcharge (MCTMT). The Franchise Tax is a fee paid to the state of New York for incorporating or forming an LLC in the state. The MCTMT is a tax imposed on businesses whose Allocable Receipts are at least $1 million in a year. For businesses operating in the NYC metropolitan region, the MCTMT is a critical expense and must be paid on top of the state Franchise Tax.
The amount of the Franchise Tax is based on the New York LLC’s revenue. For instance, LLCs with revenue not exceeding $1 million owe the state minimum tax of $25. For LLCs with revenue between $1 million and $5 million, the minimum tax is the greater of $25 or $150, plus 0.15% of the revenue exceeding $1 million. For LLCs with revenue exceeding $5 million, the minimum tax is the greater of $25 or $350, plus 0.15% of the revenue exceeding $5 million. It is important to keep in mind that state and metropolitan taxes and fees can change each year. Businesses must stay up to date on the latest tax regulations to ensure accurate tax filing.
In New York, LLC members must also pay income taxes on their share of LLC’s earnings. This is reported on their individual income tax returns. LLC members are taxed according to their share of ownership. Because LLCs have flexible ownership (members can own different percentages of an LLC) it is important to keep careful records of each member’s ownership and to provide LLC members with adequate information to file their personal taxes.
In addition, any of a LLC’s earnings that do not pass through to the members — namely, money spent on workers’ salaries and transportation costs — can be subject to self-employment tax. This is an additional tax paid by self-employed people and members of LLCs, and this income is also subject to a self-employment tax.
It is important for New York business owners to be aware of the various taxes and filing processes associated with owning an LLC. It is recommended to consult with a qualified and experienced lawyer or a CPA to ensure the proper filing of taxes and compliance with all relevant regulations. UpCounsel is a great resource to find experienced business lawyers with expertise in the taxation and regulatory laws of New York. Our team of experienced business lawyers can help you navigate the complexities of LLC taxation in New York and provide customized legal solutions to ensure your business remains compliant with all applicable laws.