People who choose to start a small business in Harrison, New York are already at an advantage: Harrison is just an hour’s drive away from New York City, one of the centers of the world’s economy. Some of the most powerful financial institutions are found in New York, as well as a wealth of potential clients.
As much as the state of New York offers many advantages to small businesses, it also has some disadvantages and potential difficulties that every entrepreneur should be aware of when planning to start a business. For example, New York is known for having a complicated and expensive tax code. The tax is calculated depending on the financial statements received from the business, and the highest tax bill is the one that is considered. In New York, C corporations in particular are profoundly affected by business taxes.
New York Corporation Franchise Tax
Most small businesses are not categorized as C corporations, but the moment they get to a certain level of growth, they automatically transition. Once a business owner can understand how corporations pay their taxes, he or she can be in a better position to decide where to locate the business.
In New York City, a corporation franchise tax has to be paid by all corporations. As much as it might be a standard figure in all the states in America, it is difficult to get an exact figure if you are running a business in New York. Businesses use financial reporting loopholes to reduce the amount of tax they pay. However, the state has managed to block all those loopholes. The state allows businesses to calculate their tax due using four methods:
- The most straightforward calculation is done on the net income. Once some esoteric adjustments are made, the remaining amount is taxed at 7.1%. However, businesses with a net income of less than $290,000 get a better deal and pay 6.5%.
- Corporations are taxed based on the company and investment capital, minus all the liabilities. The final figure is acquired after deducting the tax rate of 0.15% and a cap of $1 million. On the other hand, manufacturers who are qualified are taxed similarly, but pay a cap of $350,000.
- Another option is the minimum taxable income, which is a combination of the net income and federal adjustments. The tax rate is 1.5%, while the rate of qualified manufacturers is 0.75%.
- Finally, the fixed dollar minimum method taxes corporations based on their gross receipts. The figure differs, ranging from $25 for gross receipts that are under $100,000, to $5,000 for gross receipts of over $25 million.
S Corporations in New York
This is a special kind of corporation, in which the S status allows income to move from the business to the owner. The owners pay personal income tax for the money earned. As a result, S corporations are not taxed in most states.
In New York, though, the situation is different because S corporations have to pay the corporation franchise tax. However, some of the corporations might opt to use gross receipts to calculate tax to pay lower rates.
For a business in New York to gain the S status, they must file a federal designation form and an additional form with the state. Upon failure to do so, the business pays taxes as a corporation, which means the taxes will be higher.
In S corporations, net income is given to the owners. New York taxes this income as well.
Partnerships and New York Taxes
Partnerships also pass income directly to the owners. The owners do not pay federal income tax in most places, including New York. In New York, partnerships get more breaks than corporations because they are entitled to filing fees the moment their income exceeds $1 million. However, the business partners need to pay their taxes separately after earning income.
Sole proprietorships in New York do not pay any filing fees or corporate franchise taxes. An owner of the sole proprietorship pays personal income tax that ranges from 4% to 8.82% in New York. Therefore, taxes for sole proprietorships are standard in most states.
New Developments in New York Business Taxes
Lately, there have been efforts by the State of New York to encourage the growth of new businesses. The initiative is known as the New York Start Up Program. This project allows new businesses that partner with local schools to be exempt from paying taxes for a period of 10 years, and this initiative is seen as a way to create employment and boost New York’s economy.
At Capital Connex, we know that starting a business in Harrison, NY or anywhere else in the state can be a complicated process. We’re here to help, with plenty of funding options for Harrison entrepreneurs. Get in touch with us today!