NYC Small Business Resource Center Science, Industry and Business Library NYPL Lion
Home Events Videos Forum FAQ Services Directory Business manual Ask a question Site Map

Business Owner's Manual

Tax Planning

  

Planning for taxes is a vital part of running a successful small business, and technology makes it easier to obtain the necessary information. Still, there is no substitute for an experienced tax advisor. Knowledgeable advice often results in a significant tax savings. This section outlines some of the main tax issues you will face and where to get more help.

NEW YORK CITY TAXES  

The City's Department of Finance provides a useful list outlining the major business and excise taxes (city and state). For more information, download the New York City Tax Guide and other forms via the Brochures and Publications page of their Web site. You can also e-mail the Department of Finance with your questions.

Tax information is available by phone between 9:00 a.m. and 4:30 p.m. Monday through Friday at 718-935-6000. Or call Citytax from a touch-tone phone for recorded messages on common issues. The number is 718-935-6736.

 

Resources

In addition to the NYC Tax Guide, the following publications may be helpful:

  • The Retail Business Guide and The Restaurant Business Guide. These publications explain the taxes applicable to these types of businesses. The publications are available from the Department of Business Services at 110 William Street in Manhattan and from Local Development Corporations ("LDCs") in each Borough. Use the Services Directory and look under "Locating and Expanding" to find a LDC near you.

  • The New York City Tax Benefits Guide provides information on tax benefit programs administered by the Department of Finance for emerging businesses. It can be obtained from various LDCs, on the Web, or by calling the Department at 212-669-4855.

 

Important Issues

And don't forget these important issues affecting your City tax bill:

  • Unlike the State and Federal governments, New York City taxes S corporations as true corporations, imposing both the corporate tax and a personal income tax on the amount distributed to the owners.

  • New York City partnerships, sole proprietorships, and LLCs (see Structuring a business) are subject to an unincorporated business tax (the "UBT") which, like the corporate income tax, taxes corporate profit both as business income, and again as personal income of the sole proprietor, partners or members.
   
STATE TAXES  

There are several handbooks for small and new businesses that offer guidance on state tax issues and include many of the necessary forms. They can be ordered by calling 1-800-462-8100. Some of this material, as well as forms and information, is also available from the New York State Department of Taxation and Finance site. Here is a partial listing of some of the publications that you may need to consult:

  • Publication 20: New York State Tax Guide for New Businesses

  • Publication 750: New York State Guide to Sales Tax

    Note: A sales tax number is required for all businesses that sell taxable goods. The Application for registration, Form DTF-17, is available online, or by fax or mail from the State (see below). After filing, you will receive a Certificate of Authority which must be posted at your place of business.

  • Publication WT-100: New York State Tax Guide to Withholding Tax and Wage Reporting (applicable if you have employees)

Important Issues

For state, as well as federal taxes, there are a number of important issues to keep in mind:

  • In addition to federal withholding, you are required to deduct State and City income taxes from employees' pay. Publication WT-100 provides the essential information, including withholding tax tables and employees instructions.

  • State income taxes are imposed on corporations, partnerships, sole proprietorships, and LLCs in the same manner as federal income taxes.

FEDERAL TAXES

There are numerous resources to help you understand and comply with federal tax laws. The handbooks listed below, available from the IRS Internet site and IRS offices, offer essential information and instructions for new and small businesses, including procedures and tax rates.

  • Publication 334: Tax Guide for Small Businesses

  • Publication 583: Taxpayers Starting a Business

  • Circular E (Publication 15): Employers Tax Guide

Additional information is available online or by calling 800-829-1040. Also, the IRS conducts free workshops in Manhattan for small businesses. Call 212-436-1021 for details. In reviewing these materials, there are a number of important issues to keep in mind.

 

Important Issues

Every business with employees (and some sole proprietorships) must obtain a federal Employer Identification Number (EIN) by filing a Form SS4 with the Internal Revenue Service. This number is similar to an individual's social security number and must be used on all income and payroll tax returns and all other legal correspondence. Corporations will need an EIN number to open a bank account.

Employers are required to withhold income taxes, social security and Medicare taxes from wages paid to employees (but not independent contractors — see Employer guidelines) Circular E explains how to calculate the amounts to be withheld and the procedures for payment. It also includes an explanation of the forms that you and/or your employees must complete — Forms W-2, W-3, W-4, 1099 (for independent contractors), and 941.

Employers are also required to pay federal unemployment taxes, but are given a credit for amounts paid to the State. Again, Circular E provides more information.

Important Note: Payroll tax rules are strictly enforced; penalties can be very steep; and owners, partners, and even corporate shareholders are held personally liable for non-payment. The lesson: Be careful and check with your tax advisor. Depending on the number of employees in the business, you may want to consider hiring a payroll service.

The amount and type of taxes you pay on your business income will depend on how your business is structured:

  • Partnerships and limited liability companies (see Structuring Your Business) must file "information" returns, but the profits — and losses — of the business are reflected in the individual returns, just like the income from a sole proprietorship.

  • Corporate income is taxed twice, once as corporate profit and once as personal income of the shareholders.

  • S corporations are taxed only once — on the corporation's entire net profit, though a shareholder who works for the corporation must declare himself an employee and pay payroll taxes. Check Publications 334 and 583.