 |
Pennsylvania Corporation
|
Should I form a Pennsylvania Corporation?
A corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.
Advantages and Disadvantages of a Pennsylvania Corporation
Advantages of a Corporation- Shareholders have limited liability for the corporation's debts or judgments against the corporations.
- Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)
- Corporations can raise additional funds through the sale of stock.
- A corporation may deduct the cost of benefits it provides to officers and employees.
- Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.
- A corporation pays 15% federal income tax on taxable income up to $50,000; 25% tax on income from $50,001 - $75,000; 34% tax on income from $75,001 - $100,000; 39% tax on income from $100,001 - $335,000; and 34% tax on income over $335,000.
- A sole proprietor who filed a federal income tax return under the status of married, filing jointly, would pay 15% federal income tax on taxable income up to $35,800; 28% tax on income from $35,801 to 86,500; and 31% tax on income over $86,501.
Disadvantages of a Corporation
- The process of incorporation requires more time and money than other forms of organization.
- Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
- Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.
Federal Tax Forms for Regular or "C" Corporations
- Form 1120 or 1120-A: Corporation Income Tax Return
- Form 1120-W Estimated Tax for Corporation
- Form 8109-B Deposit Coupon
- Form 4625 Depreciation
Pennsylvania’s Business Tax Climate Ranks 22nd
Pennsylvania ranks 22nd in the State Business Tax Climate Index, which measures the impact on business of five major elements of the tax system: the percentage of income taken by all taxes, the individual income tax rates, the corporate income taxes, the sales tax rate, and the complexity of the tax system. Neighboring states ranked as follows: New York (49th), New Jersey (34th), Delaware (18th), Maryland (21st), West Virginia (47th) and Ohio (29th).
Pennsylvania’s State/Local Tax Burden below National Average
Estimated at 10.8% of income, Pennsylvania’s state/local tax burden percentage ranks 24th highest nationally, near the national average of 11.0%. Pennsylvania taxpayers pay $4,405 per capita in state and local taxes, and per capita income is $40,942.
Pennsylvania’s Individual Income Tax System
Pennsylvania's personal income tax system consists of a flat rate of 3.07% on all personal income. Pennsylvania's top rate ranks 2nd lowest among states levying an individual income tax. However, many Pennsylvania taxpayers also pay a local tax on earned income, commonly 1% or 1.5%, with Philadelphia well above that. Pennsylvania's 2004 individual income tax collections at both state and local levels came to $832 per person, which ranked 18th highest nationally.
Pennsylvania’s Corporate Income Tax System
Pennsylvania’s corporate tax structure consists of a flat rate of 9.99% on all corporate income. Among states levying corporate income taxes, Pennsylvania’s rate ranks 3rd nationally (behind Iowa and North Dakota). In 2001, corporate tax collections reached $114 per capita, ranking it at 16th nationally.
Home | Pennsylvania Corporation Advantages and Disadvantages | Site-Map