Entity Choice in New York City: C-Corp vs. LLC vs. S-Corp
Entity choice is the single biggest tax decision a New York business makes, and the state-city double layer makes it more consequential than almost anywhere else. A C-corporation doing business in New York City pays New York State's 7.25 percent corporate franchise tax on apportioned income plus the city's 8.85 percent general corporation tax — roughly 16 percent in state and city corporate tax before federal — and then shareholders are taxed again on dividends. That double taxation is why most small NYC businesses choose pass-through: an LLC taxed as a partnership or an S-corporation, where profits flow to owners and are taxed once on their personal returns.
| Structure | Key NYC taxes | Best for |
|---|---|---|
| C-corporation | NYS 7.25% + NYC 8.85% + double tax on dividends | Businesses planning to raise venture capital or sell |
| LLC (partnership-taxed) | Pass-through income + NYC UBT 4% for many firms | Most service businesses and partnerships |
| S-corporation | Pass-through income; owner salary subject to payroll taxes | Profitable owner-operated businesses |
| Sole proprietorship | Pass-through income + NYC UBT 4% over the threshold | Freelancers and single-owner shops |
The right answer depends on your profit, your payroll, how many owners you have, and whether you plan to raise outside capital. A good New York accountant models the actual tax on your real numbers rather than reciting a default — and revisits the structure when your income changes. The accountant who files your first return is also the one who should have told you, before you filed, whether the entity was right.
The Tax Layers an NYC Business Pays
New York City businesses pay on multiple levels, and keeping them straight is the accountant's core job. At the state level, C-corporations pay the 7.25 percent corporate franchise tax — with a minimum tax that applies even in loss years — while pass-through owners pay New York State personal income tax with brackets up to 10.9 percent. At the city level, C-corporations pay the 8.85 percent general corporation tax; NYC residents pay their own city income tax, with rates from 3.078 to 3.876 percent on top of state; and unincorporated businesses — sole proprietors, partnerships, and LLCs taxed as partnerships — pay the city's 4 percent unincorporated business tax on income above the exemption.
Then come the payroll and consumption layers. Employers with payroll in the NYC metro above the threshold owe the 0.34 percent Metropolitan Commuter Transportation Mobility Tax (MCTMT). Businesses selling taxable goods collect NYC's combined 8.875 percent sales tax. And New York State requires corporations to pay a minimum franchise tax even in years when they lose money — a fact that surprises founders who assume a loss year means no tax. An accountant tracks each layer on its own calendar, because missing the MCTMT return or underpaying the UBT brings penalties that a small business feels for years.
Convenience of the Employer and Remote Work: The New York Trap
New York's convenience-of-the-employer rule is one of the most aggressive tax doctrines in the country: if you work remotely for a New York employer, New York taxes your wages as if you worked in New York — even if you live in another state and never set foot in the office. The rule has survived repeated legal challenges and affects remote employees of NYC companies nationwide, and it makes New York payroll and withholding questions genuinely complicated for businesses with distributed teams.
The same aggressiveness shows up on the sales tax side. New York asserts economic nexus for remote sellers above its threshold, so an out-of-state business selling into New York may owe New York sales tax collection and filing even with no physical presence. For a small NYC business the lesson is practical: whether your customers, owners, or employees touch New York, the state's tax tentacles reach them, and a CPA who knows the rules will tell you exactly when registration and filing trigger — and stop you from the expensive surprise of a state audit letter two years after you thought you were done.
What New York Accounting Costs — and What Clean Books Save You
New York City accounting runs at a premium, but the fee structure is predictable for small businesses. CPA rates run roughly $250–$500 an hour; small business clients typically pay $400–$1,500 a month for bookkeeping plus compliance; and annual tax preparation runs $1,500–$5,000 depending on entity type and complexity, with C-corporations and multi-state businesses at the top of the range. Contingency never applies to accounting — you pay for the work — so the question is whether the work is priced by the hour or as a flat monthly package.
Flat monthly pricing is the model that keeps both sides honest: the accountant's incentive is to keep your books clean efficiently, and yours is to know the bill in advance. Ask what the monthly fee includes — bank reconciliations, sales tax filings, payroll runs, 1099s, and the tax-season work product — and ask for a sample monthly close so you can see what done looks like. In New York, where a filing mistake costs penalties on top of the highest tax rates in the country, the cheapest accountant is the one who misses a deadline; the right one is the one whose flat fee makes your tax life boring.
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Get a Free ConsultationFrequently Asked Questions
Should my New York business be an LLC, S-corp, or C-corp?
For most small NYC businesses, a pass-through structure — LLC or S-corp — beats a C-corp because C-corporations pay New York State's 7.25 percent corporate tax plus New York City's 8.85 percent general corporation tax, and then shareholders pay again on dividends. Pass-through owners pay personal income tax instead, and NYC's 4 percent unincorporated business tax applies to many sole proprietors and partnerships. Your accountant models the actual numbers before you pick.
How much does a small business accountant cost in New York?
New York City CPA rates run roughly $250–$500 an hour. Small business clients typically pay flat monthly accounting fees of $400–$1,500 for bookkeeping and compliance, and annual tax preparation runs $1,500–$5,000 depending on entity type and complexity. Clean monthly books make the tax bill cheaper — the accountant's work is mostly cleanup when the books are a mess.
What taxes does a New York City small business pay?
It depends on structure and location. C-corporations pay New York State corporate franchise tax (7.25 percent) plus New York City's 8.85 percent general corporation tax. Pass-through owners pay state personal income tax up to 10.9 percent, NYC residents pay city income tax from 3.078 to 3.876 percent, and many unincorporated businesses pay NYC's 4 percent UBT. Payroll over the threshold triggers the 0.34 percent MCTMT, and taxable sales carry NYC's 8.875 percent combined sales tax.
Do I need a New York accountant if my business is remote?
Often yes. New York's convenience-of-the-employer rule taxes remote workers on the income they earn for a New York employer even if they live in another state, and New York asserts sales tax nexus for remote sellers above its economic threshold. If your customers, owners, or employees touch New York, an accountant who knows the state's aggressive rules is worth the fee.
What is the difference between a bookkeeper and a CPA for a small business?
A bookkeeper runs the monthly engine: categorizing transactions, reconciling accounts, running payroll, and filing sales tax. A CPA is licensed by New York State and handles the bigger picture — tax strategy, entity choice, business tax returns, and representation before the IRS and the New York State Department of Taxation and Finance. Most small businesses need both, with the bookkeeper keeping the data clean so the CPA's work is fast and inexpensive.