Start an S Corporation in New York

If you’re thinking about making your New York small business an S corporation, read on for helpful details. We’ll show you how to navigate the New York Department of State and IRS bureaucracy to form an S corporation in New York, whether or not your business entity already exists.

S Corporation in New York: Key Takeaways

• New York businesses must file an S corporation election form with the IRS and the New York state tax department to become an S corporation. 

• In some situations, LLCs with S corp status can help their members reduce their self-employment tax liability.

• Businesses must meet the necessary qualifications to receive S corp status from the IRS.

What Is an S Corporation?

While often discussed as a business structure alongside limited liability companies, C corporations, or general partnerships, S corporations aren't the same.

S corporations have S corp status — their federal tax classification. Businesses eligible to be taxed as a corporation — C corporations or LLCs, mostly — can “elect” S corp status with the IRS on an annual basis.

Like LLCs, S corporations are pass-through entities. They also must pay everyone that works for the business as an employee. This allows shareholders to distinguish their work for the company from passive earnings on its profits, which can reduce their self-employment tax liability.

Tax Considerations for an S Corporation in New York

The Empire State recognizes S corporations and requires them to file a separate S corp election form at the state level.[1]

New York Tax Treatment of S Corporations

New York S corporations are “pass-through” entities, meaning that shareholders pay a prorated portion of the company’s corporate tax obligations on their tax returns. This is the main draw for C corporations to file for S corp status. Otherwise, the former generally goes through “double taxation.”

New York Franchise Tax for S Corporations

S corporations must pay New York’s franchise tax by filing form CT-3-S at tax time. The form is specifically for S corporations in New York. This state tax applies to all corporations in New York, including S corps.

Pass-Through Taxation

New York corporation tax passes through the S corporations to the personal income tax returns of the company’s shareholders. The income tax liability passes through to its members for an LLC with S corp status. This tax treatment makes S corporation status an exciting prospect for C corporation shareholders looking to reduce their tax liability.

Self-Employment Tax Advantages

For LLC members making big profits, S corp status has a specific tax treatment that can provide substantial tax savings. After your LLC members are compensated “reasonably” (at market rates) for their work, they can take additional distributions free of self-employment tax.

Requirements for Forming an S Corporation in New York

So will your New York business qualify for S corp status? The IRS only approves firms that meet the requirements listed below:[2]

• S corps cannot have more than 100 shareholders

• S corporation shareholders are restricted to individual U.S. citizens, “certain trusts,” and estates

• The S corp can only issue one class of stock

• Some financial and insurance institutions are ineligible

• The company must be based in the U.S.

• The company must be eligible to be taxed as a corporation (a limited liability company (LLC) or a C Corporation)

Filing as an S Corp in New York

So is S corp status right for your small business? Below, we provide step-by-step instructions for starting an S corporation in New York, beginning with establishing a corporation.

Step 1: Choose a Business Name

Your official business name needs to be unique in New York State. You can start with a business name search on the state’s entity database to see if your name is taken. Your business name cannot conflict with the filings of any other name on the record.

Even if you don’t find an exact match, however, that’s not a guarantee that your name is available. To be sure, you can write to the address below to check name availability for $5 per name:

NYS Department of State

Division of Corporations

One Commerce Plaza 

99 Washington Avenue

Albany, NY 12231[3]

Note that although this tells you your name is available, it won’t tell you if your name follows the law and will be approved.

Suppose you’ve found a name but aren’t ready to create your business. In that case, you can mail a reservation of name application to the address below with a $20 filing fee to reserve your name for 60 days:

NYS Department of State

Division of Corporations

One Commerce Plaza 

99 Washington Avenue

Albany, NY 12231 

More things to keep in mind when naming your S corporation in New York include:

• Include one of the following words or abbreviations: incorporated, limited, corporation, inc., ltd., or corp.

• Avoid restricted words and phrases 

• Search for web domains, trademarks, and social media handles that fit your name

Step 2: Appoint Directors and a Registered Agent

Your New York registered agent receives all legal correspondence on your behalf. So if you’re involved in a lawsuit or contacted by a court in any way, this address is where the documents get sent. This is a crucial role best served by a professional. However, you only need a person or corporation with a New York street address to be your registered agent.

Your S corporation shareholders must also appoint a board of directors that meets annually. You won’t have to register your business with the names of your S corp directors. Still, you must recruit a board to oversee the company. 

Your bylaws should make clear how many S corp directors there will be and how the board will operate. 

Step 3: File Certificate of Incorporation

Your New York Certificate of Incorporation files your business into the state system. This is the most crucial step in starting your S corporation. The state charges a $125 filing fee for certificates of incorporation. You can complete the document on paper and mail it or file it online.

The Certificate of Incorporation is for C corporations wanting to become S corporations. To establish an LLC, you must fill out a similar document called the Articles of Organization (some states call it the Certificate of Formation).

Here’s the info that goes into your certificate of incorporation:[4]

• Your business name

• Your business’s purpose

• The county in which your corporation is located

• The authorized shares you are issuing and the structure of those shares

• The address where the state should send legal documents (this is usually called a registered agent)

• The signatures and addresses of the incorporator(s)

• The name and address of the filer, which cannot be the corporation itself

Once your business has been registered, you will owe franchise tax on your capital and earnings. A biennial report will be due every two years to keep the information you provided current.

Step 4: Create S Corp Bylaws

Your S corp bylaws specify the rules that will govern your business. They’re not legally required but are par for the course if you want a legitimate business. Your bylaws outline when the board meets, the responsibilities of the officers, directors, and shareholders, and how ownership will be allocated and transferred, among many other things.

All owners must agree to the bylaws. In the case of a New York corporation, your shareholders will sign your bylaws, much like LLC members sign an Operating Agreement.

Swyft Filings can help you draw up robust bylaws for a fraction of an attorney’s rate and in a few clicks at most.

Step 5: Apply for an Employer Identification Number

You’ll need an Employer Identification Number or EIN to register with the federal government as an actual, tax-paying entity, lawfully withhold employment taxes, and pay estimated income tax. These are free on the IRS website.

You’ll need an EIN right away — not just to comply with federal tax laws, but to open a bank account, apply for credit cards, and secure licenses and permits with different government offices. It’s as essential as a social security number.

Step 6: Meet the New York LLC Publication Requirement

Suppose you’re starting a New York limited liability company (the steps in this article help you establish a C corporation). In that case, you have an additional step you need to get done in the first four months of your existence as a business. It’s called the publication requirement. 

The details of your Articles of Organization must be made public in the county you’ve started your business. 

Your announcement can only be in publications specified by the county clerk. Head to the website for the relevant county clerk for a list of these newspapers. Announcements must run in two newspapers for six consecutive weeks each.

When the six weeks are up, the newspapers will send you affidavits that you’ve fulfilled the requirements. At that time, you can send those in with your certificate of publication (and a $50 filing fee) to the Department of State.

Corporations don’t have to do this — just LLCs. The C corporation’s final step is filing the Certificate of Incorporation.

Step 7: File Form 2553 for S Corporation Election

You can’t make yourself an S corporation right off the bat. You must establish a corporation and then appeal to the IRS for S corp status. The form you file is called an S corporation election, IRS Form 2553. All shareholders need to sign.

The filing deadline is two months and 15 days into the tax year to have S corp status for the current tax year. For the coming tax year, you can file Form 2553 anytime. LLCs that miss the deadline must file an additional form, IRS Form 8832, concurrently with the S corporation election.

Within 60 days, the IRS will accept or deny your business entity’s S corporation election. You should have no trouble getting S corp status if you meet the S corp limitations.

Step 8: File Form CT-6 for New York S Corporation Election

With your federal S corporation status in hand, all shareholders need to file a similar form to the New York State Department of Taxation and Finance. If your S corporation election to the IRS is pending, you can inform the state. But if it is rejected, you won’t qualify for S corp status in New York.[5] 

The deadline for Form CT-6 is one month after Form 2553.

New York S Corp vs. New York LLC

Curious whether it makes sense to start a New York LLC versus an S corporation? Below, we compare the tax treatment of each, because there’s some nuance.

Advantages of Starting an LLC in New York

LLCs have pass-through taxation and a straightforward filing process on a year-to-year basis (after you’ve met the publication requirement in New York). The Operating Agreement is a flexible document with no required board meetings or onerous corporate infrastructure.

Disadvantages of Starting an LLC in New York

Suppose you seek more substantial investment or raise money by issuing stock. In that case, you must go beyond an LLC into a C corp. Additionally, LLCs can be challenging to buy and sell because members and not stockholders own them.

Very profitable LLCs may also burden their members with unnecessary self-employment tax liability.

Advantages of Forming an S Corporation in New York

S corporations have a tax treatment that sometimes allows an advantage over LLCs. Shareholders must be paid for their business work and owe self-employment taxes on those wages. But they can take “distributions” on top of that free and clear.

The chance to reduce self-employment taxes is a significant reason that members of a New York limited liability company would file an S corporation election for tax purposes.

Disadvantages of forming an S Corporation in New York

Unless the S corp tax treatment promises to unlock significant tax savings for your New York LLC, filing for S corp status is rarely worth the hassle. If your LLC doesn’t already run payroll, it will have to as an S corporation. You may also find your options for growth restricted by S corp limitations.

Ready to File for S Corp Status in New York?

The New York rules for forming an S corporation are complicated, and state fees are high. It’s well worth the minor expense to your small business to let Swyft Filings handle the paperwork for you and get your S corporation in New York set up in no time.

The smartest business owners know how to delegate and prioritize what matters most to their business. Does parsing the S corp limitations and filing paperwork sound like it should be your highest priority? Luckily for you, that’s Swyft Filings’ bread and butter. We get the work done efficiently, leaving you free to build your small business. 

Frequently Asked Questions

What is an S Corporation in New York?

A New York S corporation is a business that has filed an S corporation election with the IRS and the New York Department of Taxation and Finance.

Does New York recognize S corporations?

New York requires S corporations to submit their own form to be considered S corporations to New York state.

What is the turnaround time for filing for S corp status with the IRS?

The IRS estimates a 60-day turnaround for S corporation elections.

What is the difference between an S corp and an LLC?

S corporations are businesses with a specific tax classification called S corp status and can be LLCs or C corps. Limited liability companies (LLCs) have selected the LLC business structure and filed the appropriate paperwork.

What are the requirements for an S corporation in New York?

S corporations cannot have more than 100 shareholders, and some entities and persons are ineligible to be shareholders; the S corporation can only issue one class of stock, among other limitations.

Are taxes for LLCs and S corps the same?

S corporations have a different tax treatment than LLCs, though both of them are pass-through entities. S corp shareholders can take distributions after they’ve earned a reasonable salary for their work.

What is the S corp tax rate?

The S corp tax rate is dependent on the personal tax returns of the S corp shareholders. Corporate income tax is passed to the shareholder’s tax liability.

How do I dissolve an S corporation in New York?

Here are the New York Department of Taxation and Finance’s instructions to dissolve a New York corporation.

Bibliography

1. New York State Department of Taxation and Finance. “S corporations - tax years beginning on or after January 1, 2015.” Accessed April 7, 2023.

2. Internal Revenue Service. “S Corporations.” Accessed April 6, 2023.

3. New York State Department of State. “Reservation of Name for Domestic and Foreign Business Corporations.” Accessed April 7, 2023.

4. New York State Department of State. “Certificate of Incorporation for Domestic Business Corporation.” Accessed April 7, 2023.

5. New York State Department of Taxation and Finance. “Instructions for Form CT-6.” Accessed April 7, 2023.