How Your LLC Will Be Taxed
In this guide, you'll learn about the main types of New York business tax you'll be responsible for, including sales, self-employment, payroll and federal taxes. Profits from an LLC aren’t taxed at the business level the way they are in C Corporations. Instead, they're as follows:
State Taxes for LLCs
You'll need to pay two main types of tax to the NYS Department of Taxation and Finance: income and sales. You may also need to pay the New York Corporate Tax if it applies to your LLC.
NYS Income Tax
As a business owner, you’ll need to pay New York State income tax on any money you pay to yourself. These earnings flow through to your personal tax return. You’ll be taxed at New York's standard rates, and you’ll be able to apply regular allowances and deductions.
Any salaried employees you hire will also need to pay New York income taxes.
The New York income tax rate varies based on multiple factors, including where you live, what your adjusted gross income is and what your taxable income amount is.
You can use the tax tables provided by the NYS tax department to get an idea of how much you'll need to pay, but consult with your accountant or tax advisor to ensure you pay the proper amount.
NYS Sales Tax
If you sell physical products or certain services, you may need to collect NY sales tax at the point of purchase and then pay it to the New York Department of Taxation and Finance.
You’ll typically need to collect NYS sales tax on:
- Tangible, personal property and goods that you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
- Certain services your business may provide
Most states don’t levy sales tax on goods that are considered necessities, such as food, medications, clothing or gas.
The NY sales tax rate is 4 percent statewide. Local taxing jurisdictions (cities, counties and school districts) may impose additional sales tax at varying rates.
Use our sales tax calculator to determine how much you may need to pay. You can also find the varying rates in the state's jurisdiction lookup tool.
You must also register as a vendor with the NYS tax department before you can collect New York State sales tax. Always consult with the NYS Department of Taxation and Finance to ensure you're collecting and paying the correct amount, if you're required to collect sales tax at all.
New York Use Tax
If you purchase physical products outside the state for use in New York, you may need to pay use tax. For example, if you buy furniture for your New York business from a company in a state that doesn't have a sales tax, you'll be responsible for paying the New York use tax. It's sometimes also referred to as the NY sales and use tax.
The current New York use tax rate is 4 percent, and local municipalities may add their own use tax in addition to the state's rate. All NY sales and use tax is paid directly to the NYS Department of Taxation and Finance.
New York Corporate Tax
Some states — including New York — levy a tax on certain businesses for the right to exist as a legal entity and do business in the state. This is usually called a franchise tax, transaction tax or privilege tax. In New York, it's the Corporate Franchise Tax, most often simply referred to as the Corporate Tax.
This tax applies to all corporations. It does not apply to LLCs unless your LLC is treated as a C Corporation for tax purposes.
Federal Taxes for LLCs
As the owner of an LLC, you must pay self-employment tax and federal income tax, both of which are levied as “pass-through taxation."
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your New York LLC is paying the correct amount.
Federal Self-Employment Tax
All members or managers who take profits out of the LLC must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.
You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.
Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:
- On profits of $40,000, you would pay self-employment tax of $6,120.
- On profits of $70,000, you would pay self-employment tax of $10,710.
- On profits of $100,000, you would pay self-employment tax of $15,300.
- On profits of $140,000, you would pay self-employment tax of $21,420.
Pay Less Self-Employment Tax by Treating Your LLC as an S Corporation
The Internal Revenue Service allows an LLC to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.
You do this by filing Form 2553 with the IRS. Incfile can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.
Consult with your accountant or tax advisor for more information on reducing your LLC self-employment tax through an S Corporation tax election.
Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your LLC. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions and filing status.
You only pay federal income tax on profits you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus business expenses and other deductions for areas such as healthcare and some retirement plans.
Speak to your accountant for more information.
Employee and Employer Taxes
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.
Employer Payroll Tax Withholding
All employers are required to withhold federal taxes from their employees’ wages. You’ll withhold 7.65 percent of their taxable wages, and your employees will also be responsible for 7.65 percent, adding up to the current federal withholding rate of 15.3 percent
Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and state income tax, your employees may need to file their own tax returns.
Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.
Other Taxes and Duties
Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.
Speak to your accountant about any other taxes or duties you may need to withhold or pay.
Most LLCs must pay estimated taxes throughout the year, depending on the amount of profit and income you expect to make. The most common types of estimated tax are: