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Tax Prep Basics for New York Small Businesses

by | 11 August, 2022 | Blog
Running a successful small business can be difficult while managing a lot of moving parts. One component to ensuring your company’s success is staying tax compliant. Doing so can be easier said than done. You’ll need a good understanding of tax law in New York along with knowing how to file taxes in NY. Those are two broad topics with too much information to handle in just one article. For this, we’ll focus on the first step: tax prep basics in NY and what kind of taxes apply to you and your business.

Applicable taxes for different business types

The kinds of applicable taxes will depend on what kind of business you have. Whether you’re a corporation, LLC, partnership, or sole proprietor, the kind of business you have will dictate what taxes apply to you and just how much you might owe come Tax Day. Read on to see what kind of taxes apply to each business.

Corporation Franchise Tax

Although most small businesses are not traditional corporations, many eventually make the transition after they grow to a certain level. In New York, corporations must pay a corporation franchise tax and the state makes it more complex to determine how much tax is due. There are various ways to calculate tax due, each based on a different metric. In the end, the state requires a business to pay the highest amount calculated from the different methods.
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Net Income

The simplest calculation is based on the entire net income of the business. This equals the federal taxable income. After some adjustments to this amount by the state, the resulting amount is taxed at 6.5%.
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Capital

You may also be taxed based on your business and investment capital, minus liabilities. Tax rate applied to this amount is 0.025% with a cap of $5 million in taxes. Qualified manufacturers taxed using this method are capped at $350,000 and are only taxed 0.019%.
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Fixed Minimum

This method taxes corporations based on its gross receipts. There are tiers set for gross receipts and each tier has a flat dollar tax amount. This ranges from $25 for gross receipts under $100,000 to $200,000 for those with over $1 billion in gross receipts.

S Corporations

This kind of corporation has a special designation called an S status. This allows income to pass through the company to its owners, who will pay personal income tax. While many states don’t tax S corporations, New York does. These corporations are required to pay corporation franchise tax but may use the gross receipt method to calculate taxes. S corporations are taxed at a slightly lower rate.

Limited Liability Companies

LLCs can be classified in one of several ways: as a partnership, a corporation, or the default classification, a disregarded entity. NY LLCs classified as corporations will pay the corporation franchise tax under the same rules as traditional corporations.

LLCs of any other classification are not subject to this tax. However, they must pay state filing fees. These are calculated based on gross income.

Partnerships

Partnerships do not pay federal income tax or state tax in New York. Like LLCs, they are subject to the state filing fee, calculated using the same formula based on gross income. However, it’s only when a partnership’s gross income exceeds $1 million that they are subject to the filing fee.

Sole Proprietorships

This kind of business in NY does not pay any corporation franchise taxes or filing fees. The owner of the business simply needs to pay personal income tax, which ranges from 4 to 10.9% on their taxable income from the business.

How to file taxes in NY

Determining what taxes you owe can be difficult enough, what more having to figure out how to file and pay these taxes properly and on time. The best solution we can provide is simply consulting with and hiring a tax prep company in New York like Melanin Tax.

Melanin Tax offers a range of tax preparation services in NY for both individuals and companies. Along with tax planning and bookkeeping services, keeping your company and yourself tax compliant has never been easier. Let us help you keep your taxes in order. Book an appointment today and see just how we can help you make tax work easier.