S Corporation in NYC: Everything You Need to Know
S corporations are similar to regular corporations except for their special tax treatment with the federal or New York state tax authorities.3 min read
2. How to form an S Corporation in NY?
3. Who are the Owners of an S Corporation?
4. How long does it take to form an S Corporation?
5. Does the S Corporation pay Taxes?
6. Do Shareholders Pay Self-Employment Taxes on Income From the S Corporation?
7. Can a Shareholder Be an Employee of an S Corporation?
Like any other form of business, S corporations are allowed in the state of New York. S corporations are similar to regular corporations except for their special tax treatment with the federal or New York state tax authorities. Apart from that, other features of an S corporation, such as formation, ownership, contracting, and other business activities, are similar to that of any corporation.
S Corporation: Pros and Cons
All business forms have their advantages and disadvantages, and it is up to the business owners to decide how they will structure their business for optimum profit. Here are advantages to having an S corporation.
- With regard to formation, it is cheaper to form an S corporation than to form an LLC.
- S corporation structures are familiar to more people.
- Shareholders can save money from self-employment taxes.
On the other hand, there are drawbacks that business owners might consider:
- Number and kind of allowed shareholders are limited.
- They are less flexible than LLCs, and special allocations are not permitted.
- They limit the loss deductions at the shareholder level.
- For the preservation of limited liability, the S corporation is required to have ongoing formalities.
- New York City doesn't recognize the S corporation status, which means the corporation needs to settle taxes on the corporate level.
How to form an S Corporation in NY?
Before the nomination of an S corporation, a business should be formed as a regular corporation. Certificate of Incorporation is needed by the New York Department of State when forming a corporation. After the formation of the corporation in New York, you need to apply for S corporation with the state and federal tax departments. Here are few considerations when forming an S corporation.
- S corporations are limited to a maximum of 100 shareholders.
- Shareholders must be US Citizens or residents.
- Forming a corporation in New York costs $195, excluding legal fees.
Who are the Owners of an S Corporation?
Individuals who own a corporation are called shareholders. Shareholders receive share certificates from the corporation for something of value like cash, services, or properties that they provide to the business.
How long does it take to form an S Corporation?
After settling the formation fee of $195 and completing the requirements, you can legalize your corporation within 24 hours. However, necessary documents to prove the existence of your company usually arrive in the mail after a few business days. These documents will aid you in setting up a bank account and other subsequent business requirements.
Does the S Corporation pay Taxes?
For regular corporations, shareholders and the business are separate entities. The corporation settles taxes on the corporate level, while shareholders receive dividends from the corporation, which they include on their personal taxable income. This is considered double taxation. One of the advantages of electing an S corporation is to avoid double taxation. The corporation's income and losses are passed, through distributions of dividends, to the shareholders who individually file their personal tax. For this reason, an S corporation is called a pass-through entity.
This happens in most states, with the exception of New York State and New York City. New York City doesn't recognize the concept of S corporation. In addition, an S corporation in New York with income coming from New York City resources will be taxed as a corporation and needs to settle the New York City's General Corporation Tax.
Do Shareholders Pay Self-Employment Taxes on Income From the S Corporation?
Shareholders are not required to pay self-employment taxes. However, if they work for the S corporation, they need to declare a reasonable salary, as they are considered employees of the S corporation. To comply with federal and state laws, the S corporation is required to withhold federal and state taxes from their salaries, settle unemployment insurance and other shares of Social Security and Medicare payments.
Can a Shareholder Be an Employee of an S Corporation?
Shareholders can be employees of an S corporation, especially if they have critical involvement in the day-to-day operations of the business. With that, the corporation should include the shareholder on the payroll and settle the necessary taxes and insurances involved.
If you need help with information in forming an S corporation in NYC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.