The small business subtraction modification is a considerable benefit for New York State tax purposes that is oftentimes overlooked by taxpayers and practitioners. If you meet the definition of a small business, or are a member, partner, or shareholder of an LLC, partnership or S corporation in New York State, you may be entitled to a NYS deduction equal to 15 percent of the net items of income, gain, loss, and deduction attributable to that business.
Eligible small businesses for purposes of this subtraction modification are as follows:
- A small business that is a sole proprietorship who employs one or more persons during the tax year and has net business income greater than zero, but less than $250,000.
- A small business that is an LLC, partnership or New York S-corporation that employs one or more persons during the tax year and has New York source gross business income greater than zero, but less than $1,500,000 (must also have net business income that is less than $250,000).
- A farm business that is a sole proprietorship who employs one or more persons during the tax year and has net farm income greater than zero, but less than $250,000.
A farm business that is an LLC, partnership or New York S-corporation that employs one or more persons during the tax year and has net farm income greater than zero, but less than $250,000.
Prior to tax year 2022, the subtraction modification was equal to 5 percent of net business or farm income and was only available to sole proprietors with at least one employee and net business or farm income less than $250,000. The increased subtraction modification from 5 to 15 percent beginning in tax year 2022 should further incentivize taxpayers and practitioners to take advantage of this benefit available to them.
Please contact Mike Zeoli for more information on your businesses’ eligibility for this deduction at mzeoli@tsacpa.com or 716.438.2190.
