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New York is one of the most significant states for businesses in the United States. Not only is it a global financial hub, but it also boasts a dynamic economy that attracts entrepreneurs from around the world. However, businesses operating in New York must be prepared to meet various state and local tax obligations. Knowing the taxes applicable to businesses in New York is essential for ensuring compliance and avoiding penalties.
In this blog, we’ll explain the main taxes your business must pay when operating in New York, how they are calculated, and strategies to efficiently manage your tax obligations.
1. Corporate Income Tax in New York
Corporate Income Tax is one of the most significant taxes for businesses generating income in New York. This tax applies to C-Corporations, S-Corporations, and certain LLC that elect to be taxed as corporations.
Corporate Income Tax Rates:
C-Corporations: Pay between 6.5% and 8.85% on net income. Businesses with incomes exceeding $5 million may face higher rates.
S-Corporations: Subject to a franchise tax of 1.5% on net income instead of corporate income tax.
LLCs: Typically exempt from state corporate income tax as their income "passes through" to the owners for personal taxation. However, LLCs that elect to be taxed as corporations are subject to the same rates as C-Corps or S-Corps.
2. Sales Tax
Sales Tax is a tax that businesses must charge consumers for the sale of taxable goods and certain services. It is one of the main sources of revenue for the state and cities in New York.
Key Features of Sales Tax in New York:
Base Rate: The state Sales Tax rate is 4%, but counties and cities may add local taxes, bringing the total rate in some areas to as high as 8.875%.
Taxable Products: Most tangible goods are subject to Sales Tax, but certain food items, medications, and medical services may be exempt. Entertainment and maintenance services may also be taxable.
Sales Tax Filing and Payment:
The frequency of filing can be monthly, quarterly, or annually, depending on the amount of tax your business collects. At Prodezk, we can assist you in registering for Sales Tax and filing returns with the New York State Department of Taxation and Finance.
3. Commercial Property Tax
If your business owns real estate in New York, such as offices, retail spaces, or factories, you are subject to Property Tax. This tax is based on the assessed value of the property.
Key Features of Property Tax in New York:
Tax Rate: Varies by location, but the state average is approximately 1.69% of the assessed property value.
Property Valuation: The value is periodically assessed by local authorities. Appeals can be made if you believe the assessed value is too high.
Exemptions: Properties used for charitable or educational purposes may qualify for tax exemptions.
4. Employment Taxes
If your business in New York employs workers, you must comply with several employment-related taxes, including wage taxes and federal FICA taxes.
Unemployment Insurance (UI): Employers are required to pay unemployment insurance to fund benefits for workers who lose their jobs. The rate ranges from 2.1% to 9.9% of taxable wages, with a rate of 4.10% for new employers. Only the first $12,500 of each employee's wages is subject to this tax.
Workers’ Compensation Insurance: Employers must provide insurance to cover workplace injuries or illnesses. This tax is mandatory in New York.
FICA: Employers are required to withhold Social Security and Medicare taxes from employees' wages and match these contributions with an equal amount.
Withholding Taxes: Employers must withhold a portion of employees' wages to cover their federal income tax obligations. The amount withheld varies based on the employee's income, marital status, and exemptions claimed on Form W-4. Proper withholding is critical not only for legal compliance but also to avoid future penalties for both the business and its employees.
5. Franchise Tax
Is an annual tax that businesses must pay for the right to operate in New York. Unlike Corporate Income Tax, the Franchise Tax applies to all businesses regardless of income.
Franchise Tax Rates:
C-Corps: Based on gross income, net asset value, and net income.
LLCs: Often pay a fixed minimum amount, even if the business generates no income.
6. How Can We Help Manage Your Business Taxes in New York?
Navigating New York’s complex tax structure can be challenging, but with the right advice and planning, it’s possible to manage your business’s tax obligations efficiently.
Our Services Include:
Personalized Tax Advice: Identifying all the taxes your business must pay and optimizing your tax returns.
Tax Filing: Handling your Sales Tax, Corporate Income Tax, Franchise Tax, and other specific filings.
Ongoing Compliance: Keeping your business up to date with quarterly and annual payments, as well as regulatory changes in New York.
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