*Mr. Cuban may receive financial compensation for his support.

Last Updated: 1/17/24

How to Start an S-Corp in New York

Setting up an S corp in New York requires some patience and paperwork, but it also has potential tax advantages for a business. The process at the federal level is the same as most states, but the Empire State asks you to take some additional steps for your state taxes. We’ll walk you through it all as we show you how to form an S corp in NY. 

For a limited liability company (LLC), filing as an S corp may lower the self-employment taxes the members must pay. For C corporations, it can be a way to avoid double taxation. For a more detailed look at S corps, see our “What Is an S Corporation?” page. 

What is an S corp?

You should understand that an S corporation (S corp) is not a business structure. Rather, it’s a tax classification that either an LLC or a corporation can apply for with the Internal Revenue Service (IRS) if it meets the criteria. We’ll outline those criteria and the steps you would need to take to file as an S corporation if you decide that it’s right for your business.

If you want to form an LLC with S corporation status, our S corp service can help you do just that. Plus, we offer other services to help you run and grow your business and stay in compliance with state and federal laws.

Requirements for New York S Corporations

The IRS has a few S corporation filing requirements and limitations you should be aware of before you begin this process. Specifically, to qualify for S corporation election, an entity must:

  • Be a domestic corporation or LLC 
  • Have only one class of stock
  • Have no more than 100 shareholders or members (“shareholders” is the term for owners of a corporation, while “members” is the term for owners of an LLC)
  • Have only allowable shareholders or members, which includes individuals, certain trusts, and estates. The shareholders may not be partnerships, corporations, or non-resident aliens. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.
  • Not be an ineligible corporation, such as certain financial institutions, insurance companies, and domestic international sales corporations

If your business entity meets these requirements, you can apply for an S corporation election. 

Starting an S Corp in NY

Before you can apply to be an S corporation, you’ll need to create either an LLC or a corporation if you haven’t already done so. Then, you’ll file an election form with the IRS.

S-Corp Election Steps for LLCs

For detailed formation steps, see our New York LLC formation guide.

  • Step 1 – Choose a name 
  • Step 2 – Choose a registered agent
  • Step 3 – File Articles of Organization
  • Step 4 – Create an operating agreement
  • Step 5 – Apply for an EIN
  • Step 6 – Meet the New York LLC publication requirement

S-Corp Election Steps for Corporations

For detailed formation steps, see our New York Corporation formation guide.

  • Step 1 – Name Your New York Corporation
  • Step 2 – Appoint Directors and Registered Agent
  • Step 3 – Choose a New York Registered Agent
  • Step 4 – File the New York Certificate of Incorporation
  • Step 5 – Create Corporate Bylaws and Shareholder Agreement
  • Step 6 – Draft a Shareholder Agreement
  • Step 7 – Issue Shares of Stock
  • Step 8 – File for an EIN and Review Tax Requirements
  • Step 9 – Apply for Necessary Business Permits or Licenses
  • Step 10 – Submit Your Corporation’s First Report

Final Step: File the form to apply for S corp election

Submit the form to apply for S corporation status. Once your LLC or corporation formation is approved by the state, you need to file Form 2553, Election by a Small Business Corporation, to get S corporation status. 

The IRS requires that you complete and file your Form 2553 with the IRS: 

  • Within 75 days of the formation of your LLC or C corporation, or no more than 75 days after the beginning of the tax year in which the election is to take effect

OR

  • At any time during the tax year preceding the tax year the election is to take effect.

One caveat for LLCs wishing to file as an S corporation: If your LLC is past the 75-day election deadline, you’ll also need to file Form 8832, Entity Classification Election, to elect to be taxed as a corporation. Then you would file both Form 8832 and Form 2553 together via USPS-certified mail. 

Note that all of the shareholders/members must sign the consent statement portion of the form. For more information on when and how to file Form 2553, visit the IRS website.

Pros and Cons of Filing as an S Corp

While S corporation classification does come with benefits for some businesses, making this election might not be right for every company. Carefully weigh the pros and cons before deciding how you want to move forward. Consult a tax professional about whether the S corporation election would be best for your business.

Advantages of S Corp Status for LLCs

The advantages of filing as an S corporation for an LLC differ from the advantages for C corporations. Let’s look at the advantages for LLCs first.

By default, a traditional LLC already has pass-through taxation, so the benefits of S corp election for an LLC have to do with self-employment taxes. This takes some explanation, but for certain LLCs, it could save a lot in taxes.

Self-Employment Tax Explained

The members of a standard LLC are considered self-employed. They’re compensated by receiving their share of profits from the LLC, but they can’t be employed by the LLC. Being self-employed means paying self-employment taxes (Social Security and Medicare, which adds up to about 15.3%) on the profits received from the LLC. This is more than the taxes they’d pay for Social Security and Medicare when working for someone else because their employer would pay part of them.

Two Sources of Income

But when the members elect S corp status, they can be compensated in two ways, by receiving their share of the profits and by being paid as an employee of the LLC. Once they do that, they only pay Social Security and Medicare taxes on their salary and not the profits they receive. Depending on factors such as how profitable your company is, the savings could add up to a lot. (Of course, the members must still pay state and federal taxes and all other applicable taxes on their share of the profits.) Money paid out as salary is also a tax-deductible expense for the business. 

Reasonable Compensation

One caveat to this arrangement is that the IRS expects you to pay yourself a “reasonable” salary as an employee of the LLC. Otherwise, you could pay yourself an annual salary of $5 and avoid contributing anything to your Social Security and Medicare. 

But what is “reasonable compensation” to the IRS? The instructions on Form 1120-S read, “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” While the terms aren’t completely defined, the IRS seems to consider “reasonable” to be something similar to what others in your field are earning for the same work.

If the IRS determines that your salary isn’t reasonable, it has the authority to reclassify your non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes). Several court cases have supported their right to do this.

Disadvantages of S Corp Status for LLCs

Having an LLC with S corp status can also have drawbacks over a traditional LLC:

Stricter Requirements 

As we listed above, S corps have more qualifications to meet than a standard LLC. An S corp can have no more than 100 members, and none of them can be partnerships, corporations, or non-resident aliens. A traditional LLC doesn’t have these limitations.

More IRS Scrutiny

Because of the above restrictions and the requirements about paying yourself a “reasonable salary,” the IRS tends to monitor LLCs filing as S corps more closely. That could mean a greater chance of being audited, even if you follow the law to the letter.

In fact, S corp owners may want to observe many of the same formalities that C corporations do (such as regular meetings and keeping a corporate records book), even if they’re not legally required to so that they’ll be more prepared in the event of an audit.

Additional Accounting and Bookkeeping

Having an S corporation generally means more paperwork. If you don’t already have to do payroll for your business, being an owner-employee means that you’ll have to start doing so. Your taxes will be more complex, as well.

These added complications could mean that you’ll have higher administrative costs. You may find that you need an accountant, bookkeeper, and/or a payroll service or software.

Advantages of S Corp Status for C Corporations

If you have a C corporation (the default form of corporation), filing as an S corp does have its advantages:

Pass-Through Taxation

One big disadvantage for traditional corporations is “double taxation.” When the corporation makes money, the IRS taxes those profits on the corporate level. But when those profits are ‌distributed to the individual owners (shareholders) as dividends, the profits are taxed a second time on the shareholders’ personal tax returns.

But when a C corporation qualifies to be an S corp, those profits are usually only taxed at the individual level, at least for federal income tax. The business itself usually isn’t taxed on them. This is called “pass-through taxation,” and it’s how business entities like sole proprietorships and general partnerships are taxed. LLCs are also taxed this way unless they choose to be taxed as a corporation.

We need to add here that, since the 2017 Tax Cuts and Jobs Act, the corporate tax rate has been lowered to a flat 21%. So, the disadvantages of double taxation aren’t as severe now as they once were. 

Writing Off Losses

Just as business profits pass through to the owners of an S corp, so do the losses. Unlike the shareholders of a C corporation, S corporation owners can write off the company’s losses on their personal income statements. 

This can help offset their income from other sources and can be helpful if the corporation loses money in the first couple of years. Still, make sure you’re aware of ​​the IRS’s shareholder loss limitations.

QBI Deduction

Under the aforementioned Tax Cuts and Jobs Act, some S corp shareholders may be able to deduct up to 20% of their qualified business income (QBI). This deduction isn’t available to C corporation shareholders.

QBI is basically your share of the company’s profits, or, as the IRS puts it, “QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.” The IRS website has a detailed explanation as to what is and is not included in QBI. There’s an income threshold that, if exceeded, may reduce your QBI (see the IRS website for more details).  

Disadvantages of S Corp Status for C Corporations

S corporation status also has its downsides:

Limited Number of Shareholders

As we mentioned, an S corp can’t have more than 100 shareholders, while a C corporation has no such restriction. That limitation could be an issue later if the corporation expands and goes public.

Limited Types of Shareholders

All S corp shareholders must be U.S. citizens, or certain trusts or estates. That could limit your ability to expand internationally. You also can’t have partnerships or corporations as shareholders. C corporations don’t have these limitations.

One Class of Stock

Corporations sometimes attract investors by offering preferred stock. That’s fine for C corporations, but the IRS doesn’t allow it for S corps.

More IRS Scrutiny

Because of the extra restrictions, the IRS watches corporations with S corp election more closely to see if they’re in compliance. In other words, your corporation is more likely to get audited.

We can’t stress enough how important it is to have tax guidance about your specific situation from a qualified tax professional. An accountant with S corp experience should be able to make sure you stay in compliance with the IRS, and they may also be able to help you find additional tax savings you were unaware of.

New York-Specific Considerations

In an S corp, the business itself doesn’t usually pay federal income taxes. But what about state income taxes?

The State of New York does not automatically treat your company as an S corporation for state tax purposes. To make the New York S corporation election, you’ll need to file Form CT-6, Election by a Federal S Corporation to be Treated as a New York S Corporation. But before you do that, you need to make sure that you meet the following requirements:

  • Be a federal S corporation.
  • Be a general business corporation taxable under Article 9-A or be the parent of a qualified subchapter S subsidiary (QSSS) that is taxable under Article 9-A of the New York State Tax Law. Insurance corporations taxable under Article 33 or any corporation taxable under Article 9 can’t elect to be a New York S corporation.
  • Get consent from all of the corporation’s shareholders for making the New York S election. You’ll need to list all of them on Form CT-6 and include their signatures.

Even if they make the New York S corporation election, S corps are still responsible for paying the state’s corporation franchise tax. The business pays a fixed dollar minimum tax based on New York receipts.

New York City

If your business is in New York City, note that the city doesn’t recognize federal or New York S corp elections. New York City has a general corporation tax (GCT) that all domestic and foreign S corporations and qualified S subsidiaries must pay if they’re doing any of the following in the city:

  • Doing business;
  • Employing capital;
  • Owning or leasing property, in a corporate or organized capacity; or
  • Maintaining an office.

However, the following kinds of S corporations are exempt from the general corporation tax, including:

  • Dormant S corporations that did not engage in any business activity or hold title to real property located in New York City
  • S corporations subject to tax under the banking corporation tax
  • S corporations subject to the utility tax, except vendors of utility services that are subject to the GCT
  • S corporations organized to hold title to property as described in sections 501(c)(2) or (25) of the Internal Revenue Code
  • Insurance corporations
  • Non-stock, not-for-profit companies that are granted an exemption by the New York City Department of Finance
  • Limited-profit housing and housing development fund companies organized and operating under Articles 2 and 11, respectively, of the Private Housing Finance Law

The good news for New York City S corporations is that they’re exempt from the city’s Business Corporate Tax.

We can help

Setting up an S corp in NY can be challenging, but we’re here to make it as easy for you as possible.

When you’re ready to take the leap, we can help you form a New York LLC with an S corporation designation and provide you with valuable support for all of your business needs moving forward.

IT'S FAST AND SIMPLE

Take it from real customers

Darios was great


Darios was great! Amazing service and communication!

– Brandon Joseph

A+ support


A+ support. Thank you!

– Barbara

Shayla was just outstanding!!!!!!


Shayla was just outstanding!!!!!! Excellent services, straight to the point. Very happy with the responses

– Meenal Vermani

New York S Corp FAQs

  • For a corporation, the major advantage is being able to avoid double taxation. Typically, a C corporation’s profits are taxed at both the business and individual shareholder level, while an S corp’s profits are taxed only on the individual level. 

    For an LLC, when the members elect S corp status, they can be compensated in two ways, by receiving their share of the profits and by being paid as an employee. Once they do that, they only pay employment taxes (Social Security and Medicare) on their salary and not the profits they receive. For some LLCs, this can add up to substantial tax savings.

  • The naming process for your corporation or LLC isn’t affected by your S corp status. Whether you file to be taxed as an S corp or not, your business remains an LLC or a corporation and follows the same state business naming rules.

    Before formally registering a business name, you should first search the New York business entity records to make sure that you don’t select one that’s already in use by another business. That aside, however, you can typically name your S corporation what you want as long as you comply with state business naming regulations.

  • S corp election may not be right for all businesses. If you’re not sure whether to identify your LLC as an S corp or keep the default status, be sure to consult with an experienced business law attorney or accountant.

  • Calculating S corp taxes is best left to professionals, but you can check out our S corp tax guide to learn more about navigating taxes for your S corporation. 

  • Sorry, but our S corp service is only for applying for S corp status when you form your LLC with us. We do offer plenty of other services to support your established business, though.

  • According to the IRS website, they will notify you as to whether your S corp election is accepted within 60 days of filing Form 2553.

  • If you’re a new LLC, you must apply for S corp status within 75 days of your LLC’s formation or no more than 75 days after the beginning of the tax year in which the election is to take effect. For an existing business, you would file at any time during the tax year preceding the tax year it is to take effect.

  • An LLC is a legal business entity, whereas an S corp is a tax filing status. You can read more about the differences on our LLC vs. S corp page.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

zenbusiness logo

Written by Team ZenBusiness

“This is your life.
You want to get it right.”

– Mark Cuban on Starting a Business

Entrepreneur and Shark Tank host lays out
3 steps to follow when starting a business

  • Form an LLC to protect your liability
  • Set up your banking and accounting
  • Grow sales by marketing your website


Play Video

Form Your New York S Corp