In Pennsylvania, there are a few conditions that must be met to register a professional business as an S Corp. First, the business must be engaged in the practice of a profession permitted by state law. Second, the business can only have one class of stock outstanding. Third, banks and insurance companies do not qualify. Finally, there must be a valid business purpose.
To start the process, you need to:
- Choose a business name and check if it’s available by searching Pennsylvania’s database.
- File Articles of Incorporation and pay the $125 fee.
- Submit Form 2553 to the IRS to elect S Corp status. This avoids double taxation of income. Instead, earnings pass through to the shareholders.
Some key advantages of a PA S Corp are:
- No separate state franchise tax.
- Only the 3.07% personal income tax rate applies.
Business expenses can offset income for tax purposes. An alternative option is a PA LLC taxed as an S Corp, which provides liability protection but similar tax treatment.
When deciding between an S Corp and LLC, consider things like owner liability, the number of shareholders, and payroll tax complications. Most law firms can qualify as S Corps but must pay shareholders fair salaries. For small businesses weighing options in Pennsylvania, the S Corp often makes good financial sense.
What is the tax rate for S corp in PA?
The tax rate for an S Corp in Pennsylvania is the personal income tax rate of 3.07%.
How expensive is an S corp?
There is a $125 fee to file Articles of Incorporation in Pennsylvania, plus the costs associated with meeting other state and IRS requirements.