Tax Planning: Frequently Asked Questions

Rates range from 4% to 10.9% depending on income. The top rate of 10.9% applies to income over $25,000,000. NYC residents pay an additional 3.078% to 3.876% city income tax. Combined with federal rates, top earners in NYC face a marginal rate exceeding 50%. Tax planning is not optional at these levels.

Source: N.Y. Tax Law § 601; NYC Admin. Code § 11-1701

New York enacted a pass-through entity tax (PTET) that allows eligible S-corps and partnerships to elect to pay state income tax at the entity level, effectively bypassing the $10,000 individual SALT deduction cap. The owner receives a corresponding state tax credit. The election must be made annually by March 15.

Source: N.Y. Tax Law § 862; IRC § 164(b)(6)

An S-Corp election can save self-employment tax (15.3% on the first $168,600 of earnings) once your net business income consistently exceeds $40,000-$50,000. You must pay yourself a reasonable salary, and the IRS scrutinizes artificially low salaries. Compliance costs (payroll, tax filings, accounting) add $2,000-$5,000 annually.

Source: IRC §§ 1361-1379; FICA 26 U.S.C. § 3101

If you expect to owe $1,000+ in federal tax or $300+ in New York tax after withholding, you must make quarterly estimated payments. Due dates: April 15, June 15, September 15, January 15. Underpayment triggers penalties. Safe harbor: pay 100% of last year's tax (110% if AGI exceeds $150,000).

Source: IRC § 6654; N.Y. Tax Law § 685(c)

Ordinary and necessary expenses including rent, utilities, payroll, insurance, professional services, marketing, supplies, vehicle use (72.5 cents/mile for 2026), and travel. Meals are 50% deductible. Entertainment is not deductible. Home office deduction requires regular and exclusive business use. Keep receipts for everything.

Source: IRC § 162; IRS Rev. Proc. 2023-34 (mileage rate)

Section 1202 allows founders and early investors to exclude up to $10 million (or 10x their basis) in capital gains from the sale of QSBS held for 5+ years. The company must be a C-Corp with gross assets under $50 million at the time of stock issuance. This is one of the most powerful tax benefits available to entrepreneurs.

Source: IRC § 1202

Structure the deal as a stock sale (capital gains rate for sellers) rather than an asset sale when possible. Utilize installment sales to spread gains over multiple years. Maximize QSBS exclusion if applicable. Consider opportunity zone deferrals, charitable remainder trusts, and state tax planning (New York taxes capital gains as ordinary income).

Source: IRC §§ 453, 1202, 1400Z

SEP-IRA: contribute up to 25% of net self-employment income (max $69,000 for 2024). Solo 401(k): up to $69,000 total ($23,000 employee + employer contributions), plus $7,500 catch-up if 50+. Defined benefit plans can shelter $200,000+ annually for high earners. All reduce current taxable income dollar for dollar.

Source: IRC §§ 408, 401(k); IRS Notice 2023-75

You can deduct expenses for a portion of your home used regularly and exclusively for business. Simplified method: $5 per square foot (max 300 sq ft = $1,500). Regular method: calculate actual expenses (mortgage interest, insurance, utilities, repairs) proportional to business-use square footage. The space must be your principal place of business.

Source: IRC § 280A

High income, large itemized deductions relative to income, significant unreported income (1099 mismatches), home office deductions, substantial business losses, residency changes (especially NYC exits), and amended returns. New York is particularly aggressive about auditing taxpayers who claim to have moved out of state but maintain ties.

New York applies the 'convenience of the employer' rule: if you work remotely for a New York-based employer and the remote work is for your convenience (not the employer's necessity), New York taxes that income as if earned in New York. This applies even if you live and work in another state.

Source: N.Y. Tax Law § 601; 20 NYCRR § 132.18

A deduction reduces your taxable income. A $10,000 deduction at a 37% tax rate saves $3,700. A credit reduces your actual tax bill dollar for dollar. A $10,000 credit saves exactly $10,000. Credits are significantly more valuable. Examples: child tax credit ($2,000/child), R&D credit, energy efficiency credits.

Source: IRC §§ 24, 41

The IRS generally requires records for 3 years from the filing date (6 years if income underreported by 25%+, indefinitely for fraud or failure to file). Keep: all receipts over $75, bank and credit card statements, payroll records, 1099s, W-2s, prior tax returns, property records, and investment transaction records. Digital copies are acceptable.

Source: IRC § 6501 (statute of limitations on assessment)

An agreement to settle tax debt for less than the full amount owed. The IRS considers your ability to pay, income, expenses, and asset equity. The application fee is $205 (waived for low-income taxpayers). Acceptance rates are roughly 30-40%. You must be current on all filing requirements. Rejected offers can be appealed.

Source: IRC § 7122; IRS Form 656

The IRS treats cryptocurrency as property, not currency. Every sale, trade, or use triggers a taxable event. Short-term gains (held under 1 year) are taxed at ordinary income rates. Long-term gains (held over 1 year) are taxed at 0%, 15%, or 20%. Losses can offset gains. Exchanges must report transactions on Form 1099-DA starting 2025.

Source: IRS Notice 2014-21; IRC § 1001; Infrastructure Investment and Jobs Act

NYC imposes a 4% UBT on net income from unincorporated businesses (sole proprietors, partnerships, LLCs taxed as partnerships) operating in NYC. There is a $95,000 exemption, and the first $100,000 of net income receives a credit. Self-employed professionals (lawyers, doctors, consultants) in NYC should factor UBT into their tax planning.

Source: NYC Admin. Code § 11-503