Learn the steps to create an S Corp in New York and how we can help make it easier.
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Starting a new business is exciting but may be a bit intimidating. Choosing between all the different business entity types can leave your head spinning. That’s where we come in. We can help you form the enterprise that’s right for you.
If you’re a small business owner, consider an S Corporation. This isn’t a formal business structure but rather a tax election that you make with the IRS. For small business owners, S Corporations can provide significant tax benefits. You start by creating an entity, like a limited liability company (LLC) or corporation (also known as a C Corporation), and then file an election form with the IRS. With our New York LLC Formation Service and New York Corporation Formation Service, we can help you with the first steps of creating a New York S Corp. Check out our S Corporation information page for more information and to get your questions answered.
Once your business is set up, we can help you stay in good standing with the state and meet any filing requirements using our Worry-Free Compliance Service. With all the products and services we offer, you’ll have what you need to run your business successfully.
If you’re ready to learn about creating an S Corp in New York, let’s get started!
Select a name that reflects either your business product or service. You also need to be sure that the name you want is available and meets the state’s business name requirements.
We can run a name search for you and even reserve the business name while you get the rest of your filing paperwork together.
All states require corporations to name an agent to receive important documents on behalf of the company.
In New York, every corporation must name the New York Secretary of State as the agent and can also appoint a registered agent to receive service of process (i.e., legal documents) for the corporation.
Whether you’re creating an LLC or a corporation, you need to select a group of people to provide oversight for your organization. Corporations call them the board of directors and LLCs refer to them as managers or members.
To officially create your business, you must file formation paperwork with the New York Department of State, Division of Corporations.
In New York, an LLC must publish a copy of its Articles of Organization in two newspapers for six consecutive weeks.
This publication requirement doesn’t apply to corporations.
Now that you have your entity set up, the last step is to file Form 2553 with the IRS to make the S Corporation election. It’s important to note that LLCs must change their tax election to be treated as a corporation before filing Form 2553.
New York also requires that you make a New York S election to receive tax treatment as an S Corporation.
Before setting up an S Corp in New York, your business must meet certain requirements set by the IRS. Generally, corporations must:
LLCs must also meet these requirements to get a New York S Corporation election. The IRS provides more details on each of these criteria.
When to make the S Corporation election depends on when you want the S Corp status to take effect. For new businesses with no prior tax year, you must complete and file the form with the IRS no more than two months and fifteen days after the beginning of the tax year the election is to be effective.
If your business has been in operation and previously paid taxes, the form can be filed any time during the tax year before the year you want it to take effect.
It’s important to understand the good and the bad that comes with making an S Corporation election.
S Corporations are favored mostly because of the pass-through tax treatment. This means that the S Corporation’s income, losses, deductions, and credits pass through to the shareholders or LLC members who report everything on their personal tax returns. Those individuals then pay income tax at their personal tax rate. Not paying federal income tax at the corporate level can result in some serious tax savings.
Business owners of S Corporations can yield additional tax savings when it comes to self-employment taxes. For example, when an LLC makes a profit, that entire amount is subject to self-employment tax. On the other hand, S Corporations can classify distributions as either dividends or salaries. The S Corporation pays self-employment tax only on the salary amounts, not the dividends.
S Corporations also provide the following benefits:
As you can see, there are plenty of pros that make S Corporations attractive to small business owners.
While the tax advantages of S Corporations can be significant, consider the following cons that come with making the election.
Forming and maintaining an S Corporation isn’t a quick and easy thing. It can be expensive and time-consuming. There are also plenty of opportunities to make mistakes along the way as you have to meet the tax qualification obligations. Whether it’s getting unanimous consent from the shareholders or meeting the filing requirements, you have to be meticulous when making the S Corporation election.
Another disadvantage to S Corporations is the limitation to one class of stock. This results in less flexibility when allocating income and losses among shareholders or members.
Lastly, the IRS closely monitors S Corporations because they have the power to classify distributions as dividends or salaries. The IRS will scrutinize salary payments and look to determine whether they’re reasonable.
To form a New York S Corp, you must make an actual election by submitting the appropriate forms at both the federal and state levels. When you create a corporation, the default is C Corporation election. For LLCs with more than one member, the default is to be treated as a partnership and taxed as such.
S corporations are actually a type of tax classification, not a business structure. Similar to LLCs, S Corporations provide limited liability protection and are subject to pass-through taxation, as discussed above. Keep in mind, however, there are differences between LLCs and S Corporations, and it’s important to understand them before you make the election.
Although S Corporations are not subject to federal income tax at the corporate level, a New York State S Corp still owes corporate franchise tax. This tax is a fixed minimum amount based on New York receipts.
C Corporations and S Corporations differ in terms of tax treatment and ownership restrictions. C Corporations pay federal income tax on their income at the corporate level, and then shareholders pay income tax on distributions received. This is known as double taxation. S Corporations, on the other hand, pass their income through to the shareholders or LLC members who declare the income on their individual tax returns.
S Corporations also have strict ownership requirements, while C Corporations have no restrictions in terms of the number or types of shareholders.
The underlying entity, whether that be an LLC or corporation, must first meet the IRS’s criteria for ownership (e.g., no more than 100 shareholders, one class of stock, etc.). Then, you must complete and file Form 2553 with the IRS making the S Corporation election.
Under New York’s S Corporation filing requirements, any entity that wants to make an S Corporation election must also file Form CT-6 with the Department of Taxation and Finance.
New York also requires that all shareholders agree to the S Corporation election and individually affirm their consent on Form CT-6.
LLCs can make an S Corporation election by filing the same Form 2553 as corporations. S Corporation treatment is favorable for LLCs because of the potential tax savings.
Check out our article on Tax Information for LLCs to learn more.
Let’s get your business started today! With our S Corporation Formation Service, we can help you make your election. Our team of experts is here to answer your questions and support you throughout the filing process.
With all of the products and services we offer, our aim is to support you in running and growing your business. We can help with anything from incorporating your company to applying for an Employment Identification Number (EIN) to writing a business plan. Let us know what we can do for you!
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
A New York S Corp offers the following benefits:
Although there are significant advantages to S Corporations, they’re not for every type of business. S Corporations are subject to all of the corporate formalities, such as filing requirements, and the IRS imposes strict ownership limitations. Consider both the pros and cons before making an S Corporation election.
When choosing any business name, it’s important that you follow the state’s guidelines and requirements. Check with the New York Department of State to know what the rules are for naming your business.
You need to weigh the pros and cons of an S Corporation status before making an election. Not all LLCs will meet the IRS’s requirements, and some owners won’t want to keep up with maintaining an S Corporation.
If you need help deciding if an S Corporation election is right for you, consider working with a tax or legal professional.
S Corporations don’t pay federal income taxes but still need to file an informational return with the IRS. Any income, losses, credits, or deductions pass through to the corporate shareholders or LLC members who report everything on their individual returns.
For a detailed explanation, read our article on how to Calculate Your S Corporation Taxes. Don’t hesitate to hire a tax professional to help you correctly calculate your S Corporation’s taxes.
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