Overview of Pennsylvania S Corporation
A PA S corp is any domestic or foreign corporation operating in Pennsylvania and doing business, unless it filed the Election Not to be Taxed as a Pennsylvania S Corporation form (REV-976). The S corporation must follow all personal income and corporation tax requirements in the state.
Qualifications and Benefits of S Corporations
A PA can file as an S Corp if it meets conditions: it must be a professional corporation engaged in permitted professional practice under state law, have only one class of stock, not be an insurance company or bank, and have a valid business purpose. One S Corporation advantage is tax benefits for shareholders. Unlike traditional corporations, S Corporations don’t pay federal income taxes. Instead, profits and losses pass through to shareholders who report them on personal returns. Another benefit is fewer shareholder requirements. For example, no limit on number of shareholders and no requirement to be U.S. citizens or residents.
Differences Between C Corp and S Corp in PA
The main difference between an S Corp and C Corp lies in federal income tax liability and ownership. S corps are pass-through entities, where profits and losses pass through to shareholders’ personal tax returns. C corps are separate taxable entities, subject to double taxation. Both entities offer limited liability protections.
Taxation Structures of C Corp and S Corp
C Corp. are taxed twice, firstly they separately taxed, i.e. corporate tax return is submitted to the relevant authority and the tax is paid at corporate level. Secondly, when the profit is allocated to the shareholders as dividend, tax is paid one more time, on individual rates on the dividend received. On the contrary, no income tax is paid at corporate level by the S corp. however an informational federal return is submitted to the relevant authority. The business profits or losses are passed through, and declared by the owner, in his/her individual return.
Choosing Between an LLC and an S Corporation
The main difference between an LLC and an S-corp is that an LLC is a type of business entity and an S-corp is a type of tax structure created by the IRS. Whether you’re curious about establishing an LLC or launching an S corporation, starting a business is an exciting undertaking full of learning experiences. You can use this guide to sort out the difference between LLC vs S corp to make the best decision for your business.