LLC vs S-Corp in New York


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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LLC vs. S Corp in New York

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in New York. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in New York. Before you start New York LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with New York LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in New York.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in New York?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in New York gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in New York?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in New York?

In New York, forming a business is crucial since you need to be adequate in your decision, especially when you think if New York LLC or an S-Corporation in New York is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in New York doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.

– LLCBuddy Editorial Team

Tax Difference Between New York LLC and S-Corp in New York

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in New York is suitable for your business.

Federal Taxes: There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in New York. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in New York are the same in terms of pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners are required to pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in New York are mandated to have double taxation. It means that they must pay federal taxes at the entity level.

Self-Employment Taxes: Most LLC owners choose S-corporation taxation in New York to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes.

Consider the scenario where you are the only owner of an LLC in New York with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a New York S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

New York State Taxes: At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in New York, it costs $4.50 that can be paid to the NC Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $200 (by mail and online).

On the other hand, you also need to pay taxes if you form an S-Corporation in New York; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the NC Secretary of State to pay this.

How do New York LLCs and S-Corporations Handle Liability Protection?

In New York, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in New York. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in New York.

  • Insurance business
  • Domestic and International sales corporations
  • Partnerships
  • Corporations
  • Unauthorized Immigrants
  • Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your New York LLC or New York S-Corp.

Which is Easier to File in New York: LLCs or S-Corporations?

Filing an LLC or S-Corporation in New York takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by New York Resident Agent. However, in order to establish an LLC in New York, you must submit a Articles of Organization to the New York Department of State. Your Articles of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the New York S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in New York because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in New York, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In New York, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

FAQs

What is an LLC in New York?
An LLC in New York is a limited liability company, which is a type of business entity that protects its owners from personal liability for business debts and obligations.
What is an S-Corp in New York?
An S-Corp in New York is a type of corporation in which the income, losses, and other tax attributes are passed through to the owners’ personal tax returns.
What are the advantages of forming a LLC in New York?
The advantages of forming an LLC in New York include limited liability protection for the owners of the business, flexible management structure, pass through taxation, and ease of setup.
What are the advantages of forming an S-Corp in New York?
The advantages of forming an S-Corp in New York include limited liability protection for the owners of the business, a more formal structure than an LLC, the ability to receive certain tax benefits, such as the ability to take a salary, and the potential for lower self-employment taxes.
What are the requirements to form an LLC in New York?
The requirements to form an LLC in New York include selecting a name for the LLC, filing the Articles of Organization with the New York Secretary of State, and creating an Operating Agreement.
What are the requirements to form an S-Corp in New York?
The requirements to form an S-Corp in New York include selecting a name for the corporation, filing the Articles of Incorporation with the New York Secretary of State, obtaining a federal employer identification number, and filing Form 2553 with the IRS to make an election for S-Corp status.
What are the benefits of operating an LLC in New York?
The benefits of operating an LLC in New York include limited liability protection for the owners, pass through taxation, and greater flexibility in managing the company.
What are the benefits of operating an S-Corp in New York?
The benefits of operating an S-Corp in New York include limited liability protection for the owners, the potential for tax savings through wages, and a more formal business structure than an LLC.
What are the tax implications of forming an LLC in New York?
The tax implications of forming an LLC in New York are that it will be treated as a pass-through entity, meaning that all income, losses, and other tax attributes are passed through to the owners’ personal tax returns.
What are the tax implications of forming an S-Corp in New York?
The tax implications of forming an S-Corp in New York are that it will be treated as a pass-through entity, meaning that all income, losses, and other tax attributes are passed through to the owners’ personal tax returns. Additionally, the S-Corp may be eligible for some tax benefits, such as the ability to take a salary, which may reduce the overall tax burden.
Is there an annual filing requirement for an LLC in New York?
Yes, there is an annual filing requirement for an LLC in New York. An LLC must file a biennial statement with the New York Department of State every two years.
Is there an annual filing requirement for an S-Corp in New York?
Yes, there is an annual filing requirement for an S-Corp in New York. An S-Corp must file an annual report with the New York Department of State each year.
Are there any fees associated with forming a LLC in New York?
Yes, there are fees associated with forming a LLC in New York. The filing fee for the Articles of Organization is $200. Additional fees may be applicable depending on the structure and purpose of the LLC.
Are there any fees associated with forming an S-Corp in New York?
Yes, there are fees associated with forming an S-Corp in New York. The filing fee for the Articles of Incorporation is $125. Additional fees may be applicable depending on the structure and purpose of the S-Corp.
Is there a requirement to have both an operating agreement and bylaws for an LLC in New York?
No, there is not a requirement to have both an operating agreement and bylaws for an LLC in New York. However, it is highly recommended to have an operating agreement in place to ensure that the LLC is properly managed and that the rights and obligations of the members are clearly defined.
Is there a requirement to have both an operating agreement and bylaws for an S-Corp in New York?
Yes, there is a requirement to have both an operating agreement and bylaws for an S-Corp in New York. The operating agreement sets out the internal management structure of the S-Corp and the bylaws provide a framework for the conduct of business within the S-Corp.
Is there an annual fee to maintain an LLC in New York?
Yes, there is an annual fee to maintain an LLC in New York. An LLC must file a biennial statement with the New York Department of State every two years with a filing fee of $9.
Is there an annual fee to maintain an S-Corp in New York?
Yes, there is an annual fee to maintain an S-Corp in New York. An S-Corp must file an annual report with the New York Department of State each year with a filing fee of $9.
Does an LLC in New York need to have an operating agreement?
Yes, an LLC in New York needs to have an operating agreement. An operating agreement sets out the internal management structure of the LLC and clarifies the rights and obligations of the members.
Does an S-Corp in New York need to have an operating agreement?
Yes, an S-Corp in New York needs to have an operating agreement. An operating agreement sets out the internal management structure of the S-Corp and clarifies the rights and obligations of the shareholders.
Are there any restrictions on the types of businesses that can be formed as an LLC in New York?
No, there are no restrictions on the types of businesses that can be formed as an LLC in New York. Any type of business can be formed as an LLC in the state.
Are there any restrictions on the types of businesses that can be formed as an S-Corp in New York?
Yes, there are restrictions on the types of businesses that can be formed as an S-Corp in New York. An S-Corp cannot be formed for the purpose of engaging in a business that would not qualify as a C-Corp, such as a professional service.
Is there a requirement to have a separate bank account for an LLC in New York?
Yes, there is a requirement to have a separate bank account for an LLC in New York. This is to protect the personal assets of the LLC members from business debts and liabilities.
Is there a requirement to have a separate bank account for an S-Corp in New York?
Yes, there is a requirement to have a separate bank account for an S-Corp in New York. This is to protect the personal assets of the S-Corp shareholders from business debts and liabilities.
Is there a requirement to file a tax return for an LLC in New York?
Yes, there is a requirement to file a tax return for an LLC in New York. An LLC must file an annual income tax return with the New York State Department of Taxation and Finance.
Is there a requirement to file a tax return for an S-Corp in New York?
Yes, there is a requirement to file a tax return for an S-Corp in New York. An S-Corp must file an annual income tax return with the New York State Department of Taxation and Finance.
Does an LLC in New York need to have a board of directors?
No, an LLC in New York does not need to have a board of directors. The management structure of an LLC is flexible and can be tailored to the needs of the business.
Does an S-Corp in New York need to have a board of directors?
Yes, an S-Corp in New York needs to have a board of directors. The board of directors is responsible for making decisions on behalf of the corporation and is the governing body of the S-Corp.
Does an LLC in New York need to have shareholders?
No, an LLC in New York does not need to have shareholders. An LLC is owned and operated by its members, who are responsible for making decisions on behalf of the company.
Does an S-Corp in New York need to have shareholders?
Yes, an S-Corp in New York needs to have shareholders. The shareholders are the owners of the business and are responsible for making decisions on behalf of the corporation.
Are there any restrictions on the number of members or shareholders of an LLC in New York?
No, there are no restrictions on the number of members of an LLC in New York. However, an S-Corp is limited to a maximum of 100 shareholders.
Are there any restrictions on the residency of members or shareholders of an LLC or S-Corp in New York?
No, there are no restrictions on the residency of members or shareholders of an LLC or S-Corp in New York. However, members or shareholders must be 18 years of age or older and must be legally able to contract.

Also Read

Why New York LLC Vs S Corp is So Important

One of the primary reasons why choosing between an LLC and an S Corp is so important in New York is the level of liability protection they offer. As the name suggests, an LLC provides limited liability protection to its owners, meaning that their personal assets are generally protected from the debts and liabilities of the business. This can be a significant advantage for business owners who want to shield their personal finances from potential risks associated with the business.

On the other hand, forming an S Corp also provides liability protection to its shareholders, similar to an LLC. However, S Corps have stricter requirements when it comes to corporate formalities and governance, which can sometimes be seen as a disadvantage for individuals and small businesses looking to keep things simple and straightforward. This is why understanding the specific needs and preferences of your business is crucial when deciding between an LLC and an S Corp in New York.

Another important factor to consider is the taxation structure of these two business entities. LLCs are considered “pass-through” entities for tax purposes, which means that the income and losses of the business are passed through to the owners and reported on their personal tax returns. This can be advantageous for business owners who want to avoid double taxation, as is the case with C Corporations.

On the other hand, S Corps are also considered pass-through entities, but they have the option to elect to be taxed as a regular corporation, which may result in different tax implications for the business and its shareholders. Understanding the tax implications of each business structure is crucial for making an informed decision about which entity is the best fit for your business in New York.

Additionally, there are differences in terms of ownership and management between LLCs and S Corps. LLCs can be owned and managed by a single individual (known as a “single-member LLC”) or multiple individuals (known as “multi-member LLC”), while S Corps are typically owned by multiple shareholders who then elect a board of directors to manage the business. Understanding these distinctions can help you determine which structure aligns best with your business goals and management preferences.

In conclusion, choosing between a New York LLC and an S Corp is a decision that should not be taken lightly. Understanding the differences in liability protection, taxation, ownership, and management is crucial for making an informed decision that will best serve the needs of your business now and in the future. It is important to consult with a legal or financial professional to discuss your specific circumstances and goals before making a final decision on which entity is right for you.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in New York, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a New York LLC and S-Corp in New York, read our other business guides.

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