Savvy Solutions

Large sales/income companies will earn more profit by paying lower taxes under different business entity structures such as an S Corporation.   The higher costs paid to establish and report (taxes) for these entities are offset by the lower taxes paid.   The legal structure of an entity for a single member is considerably simpler than for a multiple member/partner organization.   Banks, insurance companies and nonprofit organizations cannot be setup as an LLC in Pennsylvania.

Your single member LLC will be setup as a disregarded entity, with you as the sole owner.   This is done to avoid the excessive accounting filing fees associated with a partnership return ($500+ savings).   It also provides tax savings for Social Security when the business profits or losses go against the highest paid earner in a household.   Legal forms significantly simplified as well.   If you need to employ one or more employees, your taxes will be more complicated and you will need the assistance of a lawyer to insure the business entity is setup sufficiently to protect you from any liability.  

Basic Steps

• Create an Operating Agreement
• File to create a business entity with the Dept of State
• Apply for an EIN
• Register your business with the Dept of Labor & Industry and Revenue
• Register with the Bureau of Corporation Taxes
• Open a business checking account
• Setup your business accounting practices

Create An Operating Agreement

Find and modify an operating agreement template, taking care to insert your particular information.   Name yourself as the Registered Agent.   Create a name for your business (make sure it doesn't exist in PA).   Decide on your company address and phone number (may be the same as your home).

Determine what North American Industry Classification System or NAICS (pronounced [neiks]) applies to your business.   In some cases you may also need to reference the older Standard Industrial Classification (SIC) system.   See http://en.wikipedia.org/wiki/North_American_Industry_Classification_System  

File An Application To Create A Business Entitity With The PA Dept of State

File your application with the Commonwealth of Pennsylvania Department of State Corporation Bureau (www.corporations.state.pa.us/corp).   After it is processed, you will receive an seven digit Entity Number.   Fee is $100.

Apply For A Employer Identification Number (EIN)

Apply for an EIN online with the Internal Revenue Service (IRS) at www.irs.gov.

Register Your Entity With The Dept of Labor & Industry AND Revenue

The Online PA-100 is an online fill-in form, and allows users to register an enterprise with the Departments of Labor & Industry and Revenue, but DOES NOT register the enterprise with the Department of State.   This is required in order to register with the Bureau of Corporation of Taxes (next step).   Fill out the PA-100 form online by going to: http://www.doreservices.state.pa.us/BusinessTax/PA100/FormatSelection.htm   Determine if your business is required to have a license.

Register With Bureau of Corporation Taxes

Register online with the Bureau of Corporation Taxes for the Capital Stock/Foreign Franchise Tax and Corporate Net Income Tax. http://www.etides.state.pa.us/   If you sell taxable items or perform taxable services, you are required to secure a Sales Tax license.   Taxable items are subject to a 6 percent Sales Tax.   In addition, retailers who are located within Allegheny and/or Philadelphia counties are also required to collect an additional 1 percent in local Sales Tax.

Open a Business Checking Account

Open up a business checking account using the Operating Agreement, EIN, and other information.   Choose an account type that earns no interest (to simplify taxes) in exchange for low or no fees on transactions, checks, etc.

Setup Your Business Accounting Practices

Choose a business accounting method: cash or accrual.   Define your Tax Year.   Determine your startup expenses and how they will be reported.   Define what income/expense records you must keep.   See IRS publication 583.

Accounting & Taxes

• For tax purposes, LLP and LLC are treated as partnerships
• Retain bank statements for business checking account from the data opened to the end of the year
• Create a leger that records by business tax year all activity (income/expenses)
• Log car mileage, if applicable
• Log any new bank accounts, credit cards, etc. opened per tax year