1. How Are New York Taxes Calculated?
2. Implications for Partnerships and S-Corporations with the New York State and City Tax Reforms

The NYC S Corp Tax provides a wide array of tax benefits for prospective owners of small businesses. New York City is an economic hub and part of the engine that makes the global economy work. With multiple colleges and universities throughout New York, many college students graduate and stay in New York City to start small businesses. 

While starting a small business in New York City can have many benefits, there are also some drawbacks that each potential small business owner will want to consider. Some of the potential drawbacks to opening a small business in New York City are: 

  • The business tax code in New York is extremely complicated and costly.
  • Your required taxes can be broken down in several ways depending on your financial statements. Whatever calculation results in the highest tax will be what you pay.
  • While the most expensive tax treatment focuses on corporations, small businesses are still expected to pay their fair share.
  • Although many companies start as small businesses, often the primary goal is to make it to a level where it will become a c-corporation. Considering location is important when planning for growth. 
  • Corporations are also required to pay a corporation franchise tax to the state.
  • Unlike other states, New York has made its best attempt to find and close any loopholes that businesses could use to minimize their business tax.

How Are New York Taxes Calculated?

New York has developed four ways in which businesses should calculate their tax, and the one that results in the highest tax due will be the one they will be required to pay. The first and easiest calculation is based on the net income or federal taxable income. After the state makes a few adjustments to the amount, the taxes will then be paid at 7.1%. Smaller businesses with less net income will only have to pay 6.5%.

Another way that corporations can be taxed is directly on their business capital, less certain liabilities. When taxing capital, the rate is 0.15% with a cap payment of $1 million. If you are a qualifying manufacturer, you will have a cap of $350,000.

The third way in which a business may pay its taxes is by using a minimum taxable income, which will include the business's net income after a few more federal adjustments have been made. The amount will then be taxed at 1.5% with qualified manufacturers getting a rate of 0.75%.

The final method in which taxes can be calculated is called a fixed dollar minimum tax method, based on gross receipts. Using set tiers, a flat dollar amount is assigned, which can range from as little as $25 for businesses with gross receipts under the $100,000 mark and as high as $5,000 for corporations producing much larger gross receipts of $25 million or more.

Implications for Partnerships and S-Corporations with the New York State and City Tax Reforms

Recent tax changes in both 2014 and 2015 have created significant changes to the New York City Administrative Code regarding state corporate tax provisions. These changes have caused significant alterations in the rules that affect non-resident shareholders as well as s-corporations. While these reforms have brought about state tax changes, the city tax treatment of s-corporations remains unchanged. 

While the state and city have always treated s-corporations differently when it comes to taxes, these new tax reforms have worked to even further widen the gap between state and city corporate tax law. Business owners will now find their taxes even further complicated as they will need to take into account the tax law reforms for the state but not for city taxes.

The new tax reforms did not include anything that resulted in changes in the statutes governing partnerships and corporate tax reform, yet the changes will nonetheless affect these areas indirectly. In the end, the new changes make the treatment of c-corporations taxes more simplified in terms of state and city tax, but the changes create more complications for s-corporations and partnerships, not only making an already complicated tax law more difficult for small businesses but also adding to confusion with administrators and additional tax burdens for the state's taxpayers.

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