In New York, you may incorporate a S corporation (S corp) by incorporating a limited liability company (LLC) or a corporation, then choosing S corp status on IRS Form 2553 when applying for your EIN and completing Form CT-6.
An S corporation is a tax categorization, not a company structure, according to the IRS. The S corp classification is used to lower a company’s tax burden.
In our How to Start a S Corp in New York tutorial, we’ll walk you through the steps.
Table of Contents
Considerations Before Forming a S Corp
You must examine the following things before founding a S corporation:
Is a S corporation the best option for your company?
S company rules and regulations
Why is an LLC the ideal structure for the S corporation tax status?
Are the tax benefits of a S corporation good for you?
Is a New York S Corporation the Best Business Structure for You?
Requirements and Restrictions for a S Corporation
The IRS S corp criteria and limits are as follows:
Only one kind of stock is available.
100 shareholders must be domestic LLCs or companies.
All shareholders must agree to adopt S corp status.
Be US citizens or permanent residents of the United States
Partnerships, companies, and non-resident alien stockholders are not permitted.
File a biannual report with the Department of State’s Division of Corporations in the month of incorporation and every other year (cost: $9; failure to file may result in loss of good standing in the state of New York and even dissolution). You may submit your application online.
Why is an LLC the best structure for S Corporation tax status?
As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. In addition, LLCs are often simpler to manage than corporations.
Due to the state’s LLC publishing rules, New York is the only state where this may not be true.
Because S corporations are not recognized in New York City, they must pay the city’s 8.85% business tax in addition to federal and state taxes. In most states, this is not the case. However, as a salaried employee, and depending on the profitability of your firm, you may still be eligible for tax breaks on distributions in New York City. The payouts are solely subject to income tax, not self-employment taxes.
Are S Corporation Tax Benefits Right for You?
You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our S corp versus LLC guide and calculate your possible tax savings to fully grasp the tax benefits of a S corp.
How to Form a S Corporation
There are two major methods to form a S corporation:
When requesting your employee identification number, organize an LLC and choose S corp tax status on IRS Form 2553. (EIN). To be formally taxed as a S corporation, you must additionally submit Form CT-6 with the New York Department of Taxation and Finance.
By incorporating and adopting S corp status on IRS Form 2553. To be formally taxed as a S corporation, you must additionally submit Form CT-6 with the New York Department of Taxation and Finance.
There are also precise deadlines for adopting S corp status.
You may apply for S corp status at any point during the preceding year if you want it to take effect the next year.
If you are applying within the same calendar year, you must submit your application between 2 months and 15 days of the start date (ie. March 15).
For a new business, you must submit within 2 months and 15 days after the date on the Certificate of Incorporation for the S corp tax status to take effect.
We do not advocate forming a company with the S corp tax status since it may nullify all of the advantages of forming a corporation.
Forming an LLC and Choosing S Corp Status in New York
To form an LLC and elect S corp status, follow these six simple steps:
Step 1: Give Your LLC a Name
Step 2: Select a Registered Agent.
Step 3: Submit the Articles of Incorporation.
Step 4: Fulfill the publication requirement.
Create an Operating Agreement in Step 5
Step 6: Obtain an EIN, submit Form 2553 to elect S Corp Tax Status, and submit Form CT-6.
Step 1: Give Your LLC a Name
The first and most significant step in forming an LLC in New York is deciding on a name.
Make sure your name conforms with New York naming regulations and is readily searched by prospective customers.
1. Follow the New York LLC naming guidelines:
The word “limited liability corporation” or one of its acronyms must be in your name (LLC or L.L.C.).
Your LLC’s name cannot include terms that may be confused with a government organization (FBI, Treasury, State Department, etc.).
To incorporate some restricted or forbidden terms, you must get clearance and/or satisfy specific restrictions.
Your name must be distinct from any other current company in the state. This lists reserved names in New York.
2. Does the name exist in New York? Check the New York Department of State website’s corporate entity database to see whether the name you desire is available.
3. Is the URL accessible?
We suggest that you check to see whether your company’s name is accessible as a web domain. Even if you don’t intend to construct a company website right away, you may want to purchase the URL to prevent others from gaining it.
Step 2: Select a New York Registered Agent
By default, the New York Secretary of State serves as the statutory agent for service of process, or registered agent, for all firms, but you may choose a registered agent for your New York LLC.
A registered agent for your LLC will accept legal papers and tax notifications on your behalf. When you submit your LLC’s Articles of Organization, you will name your registered agent.
Many company owners opt to use the services of a registered agent. Many of these firms will incorporate your LLC for a modest price and provide free registered agent services for the first year.
Step 3: Fill out the Articles of Organization for a New York LLC.
To properly register an LLC, the New York Articles of Organization are utilized.
Step 4: Fulfill the publication requirement.
Within 120 days of establishment, you must publish a notice of LLC formation. For six weeks, this notification must be published in two newspapers (one weekly and one daily). The publications in your Articles of Organization must be authorized by the local county clerk and disseminated in the county of the LLC’s primary office or designated registered agent’s office. Fees will vary depending on the newspaper.
Following publication, each newspaper’s printer or publisher will supply you with an affidavit of publication. These affidavits, together with a Certificate of Publication, must be submitted to the New York Department of State.
Step 5: Draft an Operating Agreement for your LLC.
An LLC operating agreement is a legal document that defines your LLC’s ownership and member responsibilities.
Step 6: Obtain an EIN, fill out Form 2553 on the IRS website, and file Form CT-6.
An EIN is a number assigned by the US Internal Revenue Service (IRS) to companies in order to identify and tax them. It is basically a business’s Social Security number.
When you apply directly with the IRS, EINs are free.
Select S Corporation Tax Status
The IRS will give a link to Form 2553, the Election by a Small Business form, during the online EIN application process.