WHICH BUSINESS ENTITY IS BEST FOR TAX PURPOSES IN NEW YORK?

When forming a company it’s important to choose the right entity for you so that you can pay the least amount of money in taxes each year.

In this article, I’ll help you answer:

  • How can I choose the right business entity for me?
  • What’s the difference between LLC, S-Corp or C-Corporations?
  • What business entity is best to save money in taxes?

Remember, everybody’s circumstance is unique.

So before making a final decision be sure to speak to a CPA that has experience with New York City or state businesses.

To see a YouTube version of this article, please watch the video below:

LIMITED LIABILITY COMPANY (LLC) ADVANTAGES

An LLC can be formed with one owner as a sole proprietor or as a partnership where you have many owners.

  • One of the advantages of an LLC with one owner is that it could operate as what’s called a “disregarded entity.”
  • With a disregarded entity, you’re not required to file a business tax return. You report all your income on your personal return.
  • This can make your life easier and save you some money on fees to hire a professional to prepare your business tax returns.

LIMITED LIABILITY COMPANY (LLC) DISADVANTAGES

  • One of the challenges of an LLC is that you can get stuck paying a lot more social security taxes.

You have to be very disciplined and make sure that you pay estimated taxes throughout the year. Because if you miss some estimated taxes throughout the year, you have to pay large penalties.

  • And when forming an LLC, you usually have to spend more money in fees to set everything up properly with the right protections.
  • In addition, you would have to also pay New York City business tax when your business earns over $100,000/year

S-CORPORATION ADVANTAGES

With an S-Corp you can:

  • Save lots of money in social security taxes.
  • Deduct business expenses that you otherwise wouldn’t be able to deduct fully with an LLC. For example, pension expenses and health insurance can be deducted directly from the business.
  • Avoid double taxation
  • If you don’t pay taxes during the year and you pay it all at the end of the year, they consider it as if it’s paid on the first day of the year.
  • If you sell merchandise, you’re able to ship it out of the city and save money on NYC business taxes

S-CORPORATION DISADVANTAGES

  • One of the one of the disadvantages is that it costs extra to file a tax return and you would usually need to hire an accountant to help you with this.
  • You would need to pay NYC business taxes at a rate of 8.85%.

C-CORPORATION ADVANTAGES

There are some reasons why a business owner would want to form a C-corporation.

One of the one of the big advantages is that:

  • You get to deduct medical expenses and other fringe benefits that you wouldn’t be able to normally deduct with an S-corporate LLC.
  • Also if someone is a very high earner (like a doctor or lawyer) it could be beneficial if they’re a C-corp. Why? Because they get to take a high salary and can cut their NYC business tax, sometimes down to zero.

C-CORPORATION DISADVANTAGES

  • One of the big disadvantages of a C-corporation is the fact that you have to pay double taxation.

SO WHICH BUSINESS ENTITY IS RIGHT FOR YOU?

The short answer is it depends.

Like I said, everybody’s situation is unique.

I would suggest considering all your options and before making a final decision speak with a tax professional who’s familiar with helping businesses in New York City and state pay less in taxes.

If you want to learn more about how you can save thousands of dollars in taxes by making ONE simple change to your finances,