Should You Elect S-Corp Status
Should You Elect S-Corp Status? Not If You’re in New York City.
If you’re a creative business owner in New York City, chances are someone’s told you to form an S-Corp. Maybe it was your accountant. Maybe it was a friend who just started paying themselves a $70,000 salary and swears they’re saving thousands in taxes. Maybe it was Instagram. It certainly wasn’t Brooklyn Fi!
That advice can make sense in the right context. Electing S-Corp status can be a smart move for small business owners. But in New York City, it’s often a bad bet. The local tax code punishes S-Corps in a way that cancels out most of the benefit. If you're not careful, the structure that’s supposed to save you money can end up costing you more.
Let’s walk through why.
DISCLAIMER: This is not tax advice. Our intent is to educate folks about why a certain strategy that works for SOME people may not apply to their specific situation. When making an important decision like what entity type your business should be, please consult a qualified tax professional familiar with the laws of where you live and work.
What S-Corps Actually Do
An S-Corp isn’t a type of business entity. It’s a tax election. When you choose it, your business stops being taxed as a sole proprietorship or partnership and starts being taxed under Subchapter S of the Internal Revenue Code.
The draw is payroll tax savings. Instead of paying self-employment tax on your entire business net income, you only pay it on your W-2 salary from your business. The rest of your business profits still flow through to your personal tax return, but they skip payroll tax entirely.
For example, if your business has a net profit of $400,000 before paying you a salary, and you then pay yourself a $140,000 salary, only that salary gets hit with Social Security and Medicare taxes. The other $260,000 avoids them. That’s where the savings come from.
It can be a powerful way to cut your tax bill, especially once your income gets into six-figure territory. But depending on where you live and work, those savings might not hold up.
Why It Can Be Less Valuable in New York City
Here’s the issue: New York City doesn’t recognize S-Corps. At the federal level, your business is treated as a pass-through entity. At the city level, it’s treated as a regular C-Corp.
That disconnect triggers additional amounts of New York City taxes. When you elect S-Corp status and live in NYC, your business is subject to additional corporate taxes that wouldn’t apply otherwise. These include:
The General Corporation Tax
The Unincorporated Business Tax (in certain hybrid cases)
Annual minimum filing fees
LLC publication fees if you’re formed that way
A flat 8.85% corporate tax rate on net income, with some minor carveouts
So, while S-corps generally save business owners money by excluding owner’s compensation from certain payroll taxes, the New York City corporate tax often erases that benefit. You’re going through a bunch of hoops to save about 8% on payroll taxes, only to be hit with an 8% corporate tax.
Meanwhile, in Los Angeles…
That same business owner in Los Angeles would come out ahead. California has its own quirks—an $800 minimum franchise fee and a 1.5% S-Corp tax on net income if higher than $800 —but it doesn’t punish you for making the S-Corp election. You still save thousands on payroll taxes, and your city won’t claw it back with surprise corporate filings.
That’s why you hear so many Los Angeles business owners talking about the S-Corp move. It works there. It just doesn’t translate cleanly to New York City
When an S-Corp Still Makes Sense in NYC
Despite all this, there are scenarios where an S-Corp can work even in New York City:
Your business earns well over $500,000 in consistent, annual profit
You’re already filing corporate-level taxes for other reasons
You plan to sell the business and want to establish a salary history
You have team members on payroll and want to run everything through one system
You don’t live in NYC full-time, or you have moved your business elsewhere
But for most solo creative professionals—especially those in their first few years of growth—the S-Corp election introduces more complexity than it’s worth. The savings are marginal, the compliance burden is real, and the tradeoff is usually worse than sticking with a Schedule C or partnership structure.
What to Do Instead
Before jumping into an S-Corp, work with someone who understands both federal tax strategy and local rules. You don’t want to take advice meant for Texas or Florida and apply it in Brooklyn.
At Brooklyn Fi, we work with creative entrepreneurs all over the country, with large concentrations in New York City and Los Angeles. We’ve seen what works in each city, and we’ve cleaned up more than a few S-Corp messes from clients who made the switch too early or for the wrong reasons. Our goal isn’t to overcomplicate your business in the name of savings that won’t materialize. It’s to help you grow with clarity and confidence.
If you're not sure what structure makes the most sense for your business, let’s talk.
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