Key Takeaways

  • An S corporation in New York is a standard corporation or LLC that elects special tax treatment under Subchapter S of the Internal Revenue Code.
  • Forming an S corp in NY involves creating a corporation, filing for federal S election (IRS Form 2553), and submitting New York’s S election (Form CT-6).
  • S corporations offer limited liability protection, potential self-employment tax savings, and pass-through taxation but come with shareholder restrictions and compliance requirements.
  • New York State recognizes S corp status, but New York City does not—S corps operating in NYC are subject to local corporate taxes.
  • Business owners should maintain corporate formalities, file biennial reports, register for an EIN, and ensure proper record-keeping to stay compliant.
  • Strategic planning around salaries, distributions, and tax filings is essential for maximizing the benefits of S corporation status.

An NY S corp is a standard corporation or limited liability company that was established in New York and has elected to be treated as an S corporation for tax purposes. Like regular corporations, an S corporation is a separate legal entity that can enter into contracts and take on business activities.

Pros and Cons of an S Corporation

An S corporation is more affordable to form than an LLC and provides a structure that most people are familiar with. With this structure, you may be able to decrease your self-employment taxes.

Like other corporations, S corporations offer shareholders limited liability protection. This means that your personal assets are protected from business debts and obligations. Your initial investment in the corporation is the extent of personal risk with an S corp. This limited liability is protected through corporate formalities such as shareholder and director meetings.

However, S corporations are limited as to the number and type of shareholders and do not have special allocations. This means that all S corp shareholders have the same rights to asset liquidation, profits, and distributions. For example, a shareholder that holds 25 percent of the corporation's shares can receive only 25 percent of distributions.

Shareholders who work for the business must pay themselves a reasonable salary and withhold state and federal taxes, Social Security and Medicare (FICA), and unemployment taxes. All profits above this reasonable salary can be paid out to shareholders as dividends. Neither the salary nor the dividends are subject to self-employment tax. The cost of shareholder salaries can be deducted from the S corp's tax return as an expense.

Unlike LLCs, S corporations must abide by meeting requirements and other official regulations. They limit the amount of losses that shareholders may deduct on their individual taxes. In New York City, S corp status is not recognized, so an S corp will be subject to double taxation and must pay NYC's general corporation tax.

Key Tax Advantages and Considerations in New York

While S corporations provide significant tax advantages at the federal level, understanding how these apply in New York is crucial. The primary benefit of electing S status is the avoidance of double taxation — corporate profits “pass through” directly to shareholders, who report income on their individual tax returns. This structure can significantly reduce overall tax liability compared to a C corporation.

However, there are state-specific nuances. New York State recognizes S corporation elections, but New York City does not. If your business operates within NYC, it must still pay the city’s General Corporation Tax (GCT), which can offset some of the tax benefits. Careful tax planning is essential to ensure that S corp status remains advantageous given your business location and structure.

Additionally, S corporations must follow IRS guidelines on “reasonable compensation.” Owners who actively work in the business must pay themselves a salary subject to employment taxes. Any remaining profits can be distributed as dividends, which are generally not subject to self-employment taxes — a major advantage over sole proprietorships or partnerships.

Creating a New York State S Corp

Before electing S corp status, you must form a standard corporation by filing a certificate of incorporation with the Department of State. The total charge for creating a New York corporation is about $195.

Even if you've already elected S corp status at the federal level, you also have to make this election for New York State. You must file Form CT-6 to receive approval from the state. Fax this form along with a copy of your federal S corp approval letter to 518-435-8605.

After filing for S corp status, you will receive your approval paperwork within a few days. You'll need these documents to open a bank account and conduct other S corp business.

Step-by-Step Formation Process

If you’re exploring how to start an S corp in NY, the following step-by-step breakdown will guide you through the entire process:

  1. Choose a Business Name:
    Your corporation’s name must be distinguishable from existing businesses and include a corporate designator such as “Inc.,” “Corporation,” or “Incorporated.” Use the New York Department of State’s business entity search tool to check name availability.
  2. File a Certificate of Incorporation:
    Submit this foundational document to the New York Department of State (DOS) and pay the $125 filing fee. This establishes your corporation as a legal entity.
  3. Designate a Registered Agent:
    New York requires a registered agent (also called an agent for service of process) to receive legal and tax documents on behalf of the corporation.
  4. Draft Corporate Bylaws and Hold an Organizational Meeting:
    Bylaws govern how your corporation operates, including shareholder meetings, voting rights, and director responsibilities. During your first meeting, appoint directors and issue stock certificates.
  5. Obtain an EIN (Employer Identification Number):
    Apply for an EIN from the IRS. It is required for hiring employees, opening a corporate bank account, and filing taxes.
  6. File IRS Form 2553:
    Within 75 days of incorporation (or the start of a new tax year), submit Form 2553 to elect S corporation status at the federal level.
  7. File New York Form CT-6:
    To be recognized as an S corporation in New York State, you must separately file Form CT-6 with the Department of Taxation and Finance.
  8. Secure Necessary Licenses and Permits:
    Depending on your industry and location, additional permits or professional licenses may be required.
  9. File Biennial Reports:
    Every two years, file a Biennial Statement with the Department of State to maintain good standing. The fee is $9.
  10. Stay Compliant With Tax and Employment Laws:
    Register for state withholding and unemployment taxes if you plan to hire employees. Keep thorough corporate records and hold regular shareholder meetings.

New York S Corp Requirements

Corporations in New York are required to keep these records at their principal in-state business address or with the registered agent:

  • Books and account records
  • Shareholder, executive committee, and director meeting minutes

You'll also need to file a biennial report during the month your business was incorporated. This carries a $9 filing fee. New York corporations that will hire employees must register for an employer ID number (EIN) with the IRS. You do not need a separate state tax ID number in New York. Most businesses require licenses and permits from your municipality.

Compliance, Reporting, and Tax Filings

Once your New York S corporation is formed, ongoing compliance is crucial to preserve your liability protections and tax status. Key obligations include:

  • Biennial Statement: File this update with the Department of State every two years in the month of incorporation.
  • Franchise Tax Filing: New York S corporations must file Form CT-3-S annually and pay any applicable franchise taxes.
  • Shareholder Limit Compliance: Maintain the S corp eligibility requirements — 100 or fewer shareholders, all of whom must be U.S. citizens or residents, and only one class of stock.
  • Payroll and Withholding Requirements: If you have employees, register for state payroll tax accounts and remit withholding taxes on time.
  • Corporate Records: Maintain meeting minutes, bylaws, and shareholder agreements as part of the corporate record.

Failing to meet these requirements can result in penalties, loss of good standing, or termination of S corporation status.

S Corporation Management

Corporate shareholders appoint a board of directors to manage the daily affairs of the business. The board appoints officers such as president, vice president, secretary, treasurer, and chief operating officer. Board actions that must be approved by shareholders can be indicated in the corporation's bylaws, which are rules by which the corporation abides. These rules are created and approved by the initial directors when the corporation is formed. If you are the only shareholder of your corporation, you also serve as the director and may hold several officer positions.

A shareholder's agreement can be created to regulate issues such as transferability of shares. For example, a shareholder can sell his or her shares to a third party, which would make that person a co-owner of the business, unless an agreement is in place to prohibit him or her from doing so.

Strategic Best Practices for S Corp Success

To maximize the benefits of your S corporation, adopt management strategies that align with both tax efficiency and long-term growth:

  • Set Competitive Salaries: Ensure shareholder-employees receive reasonable compensation to comply with IRS rules.
  • Plan for Distributions: Use distributions strategically to minimize self-employment taxes while maintaining sufficient capital for operations.
  • Hold Regular Meetings: Even if you’re the sole shareholder, document corporate actions to maintain liability protections.
  • Review Tax Status Annually: Reassess whether the S corporation structure continues to offer tax benefits as your business evolves.
  • Consult Professionals: Regularly work with accountants and legal counsel to ensure ongoing compliance with state and federal regulations.

If you need help forming or managing your New York S corporation, you can post your legal needs on UpCounsel’s marketplace. UpCounsel connects you with experienced business attorneys who can guide you through formation, compliance, and growth planning.

Frequently Asked Questions

  1. How long does it take to start an S corp in NY?
    Typically, it takes 2–4 weeks to form a corporation and receive S election approval, though expedited filing options can reduce this time.
  2. Can an LLC become an S corp in New York?
    Yes. LLCs can elect to be taxed as S corporations by filing IRS Form 2553 and New York Form CT-6, provided they meet eligibility requirements.
  3. Do I need to file both federal and state S elections?
    Yes. Even if you elect S corp status with the IRS, you must separately file Form CT-6 to be recognized at the state level.
  4. Are S corps taxed in New York City?
    Yes. New York City does not recognize S corp status. Corporations operating in NYC must pay the city’s General Corporation Tax.
  5. What happens if I miss the S election filing deadline?
    If you miss the 75-day deadline, you can request late election relief from the IRS if you have a valid reason for the delay.

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