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So you started or planning on starting a new business. You think to yourself, “what steps do I need to take in order to form my new business (a.k.a. legal entity) correctly and receive the most tax advantages structure”? There are several benefits to forming a legal entity, however this article will briefly discuss the process of the formation as well as what tax benefits that are available when forming a Corporation, Partnership or an LLC in NY or NJ States.
Whether you want to form a NY or NJ business, you must realize that this process is complex. It requires tax expertise and legal planning. You can open a Corporation, an LLC or a Partnership in the state of NY or NJ. The complete and correct incorporation process of your business is not just getting Articles of Organization filed with the State Department! There are other important steps that must be taken prior to forming your new business. One of those steps is proper tax structure for your new Corporation, LLC or Partnership. In other words, which tax structure is the most advantage to select for you new business.
The first step would be to determine what type of business you would like to form. One of the most important facts you need to evaluate is the taxation of your new business entity. Corporations for example, have two different types of taxations, a double taxation structure also known as “C Corporation” and Pass-through Corporation also known as “S corporation”. LLC can be taxed four different ways, e.g. C Corporation, S Corporation, Partnership or Sole-Proprietorship also known as Self-Employed. LLC is flexible entity and you can choose how the LLC is taxes in the beginning and in some instances, you can change the taxation of your LLC during the year. For example, if your LLC is taxed as a Partnership and now it is more advantages for you to change the taxation to a Corporation; you can do it, as long as you follow to proper procedure. Depending on what type of tax structure you would end up selecting for your new business, and presumably it is done correctly, you may be able to significantly reduce your corporate and personal taxes. However if you don’t discuss different tax implications with a qualified NYC/NJ tax accountant or a NYC/NJ CPA prior to forming your business, you could pay more in taxes in the long run.
The second step would be to file articles for incorporation or articles of organization with appropriate State Departments. In NY you file with Department of State, in NJ you file with Department of the Treasury, Division of Revenue.
The third step would be to obtain a Tax ID or EIN number from the IRS. In this step once again, you must be careful and properly select the correct tax classification (Corporation, Partnership, Sole-Proprietorship or LLC) for your business. Another important piece of information for you to be aware of is; what accounting period to select for your new business. There are two types of accounting periods: a calendar year accounting period and a fiscal year accounting period. Each tax period has its tax advantages and disadvantages. Therefore, some tax planning with a qualified NYC/NJ tax advisor or a NYC/NJ CPA would be in order.
The forth and the final step would be to register your new NY or NJ Corporation, LLC or Partnership with appropriate State Tax Departments. During this registration, you also will be able to register your new business for sales/use taxes and if necessary, obtain resale tax certificate. Note that in NY State, there is an extra step that must be taken in order to conclude the registration of your LLC. NY State requires that within 180 days of newly formed LLC a notice of the LLC formation must be published in two approved newspapers. The publishing must be in the NY county where LLC will be registered and do business. Once the evidence of the notice is received from the two approved newspapers, you then will file an extra form and pay a fee to NY Dept of State to complete the LLC registration process.