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Is your business located in New York City? Do you live outside of the City? As you know, New York State/City has some of the highest combined taxes in the country. However, certain planning steps may be able to be taken to reduce some of the impact of New York City's taxes if your company can arrange to do business, at least to some degree, both in and out of the City.
The City's Extra Tax Burden
New York State, New Jersey and Connecticut each tax the income of companies doing business in state. C corporations pay a full state tax, while partnerships, including limited liability companies (LLCs), and S corporations don't pay state tax; rather, their partners, members or shareholders pay state personal income tax (as do sole proprietors). New York City residents also pay New York City personal income tax on their share of such business income.
New York City has two extra taxes on income. First, S corporations (as well as C corporations) are subject to full corporate income tax at an 8.85% rate. Second, most unincorporated businesses (including sole proprietorships, LLCs and partnerships) pay an unincorporated business tax (UBT) at a 4% rate. (Real estate businesses and investment businesses generally are excepted from the UBT.) It is these New York City taxes that potentially can be reduced through proper planning, particularly by businesses owned by individuals who are not New York City residents. The New York State and City taxes imposed on businesses and their owners are illustrated by the following chart:
NYS Corp | NYS Personal | NYC Corp/UBT | NYC Personal | |
| Sole Proprietor | 0 | 7.5% | 4% | 0%/4.45% |
| Partnership, LLC | 0 | 7.5% | 4% | 0%/4.5% |
| S Corporation | 01 | 7.5% | 8.85% | 0%/4.45%3 |
| C Corporation | 7.5% | 7.5%2 | 8.85% | 0%/4.45%2 |
2 On distributed dividends.
3 A New York City resident effectively pays double NYC income tax (corporate and personal) on S corporat
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