The farmer will also pay tax under the personal income tax, but will use federal Schedule F to compute farm profit or loss. Partnerships are another small business form. Partners pay income tax on their distributive share of income derived from the partnership. The partnership entity also files informational returns with the State and federal governments. Appendix A provides additional detail concerning LLCs and LLPs in New York State.
Some small businesses decide to incorporate.
Small businesses, including some farms, may choose this organizational form to insulate the business owners from liability. General business corporations with 75 or fewer shareholders can elect subchapter S status for both federal and New York State tax purposes. This election causes the income from the S corporation to flow through from the entity to the shareholder. Each shareholder pays income tax on their pro rata share of the corporation's income. With personal income tax rates generally below corporate tax rates, S corporation status confers tax benefits on these business owners.