Pennsylvania Corporation
Advantages and Disadvantages

Pennsylvania Corporation Advantages and Disadvantages

Pennsylvania Corporation - Articles of Incorporation must be drafted and submitted to the Pennsylvania Secretary of State, Corporations Division. Once articles of incorporation have been successfully filed, your Pennsylvania Corporation has been formed and this begins its existence as a Pennsylvania corporate entity.

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 2012 Business Tax Climate Ranks 19th

Pennsylvania ranks 19th in the Tax State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property.

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 40th highest 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 2006 individual income tax collections at both state and local levels came to $995 per person, which ranked 16th 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 2nd highest nationally. In 2007, state-level corporate tax collections (excluding local taxes) were $184 per capita, which ranked 17th highest nationally.

Pennsylvania Levies Sales Tax Above National Median

Gasoline Tax among Highest NationallyPennsylvania levies a 6% general sales or use tax on consumers, right at the national median. State and local governments combined collected $695 per capita in general sales taxes in 2006, which ranks 39th highest nationally. Pennsylvania's gasoline tax stands at 32.3 cents per gallon, ranking 10th highest nationally. Pennsylvania's cigarette tax stands at $1.35 per pack of twenty and ranks 21st highest nationally. The sales tax was adopted in 1953, the gasoline tax in 1921 and the cigarette tax in 1937.

Pennsylvania Property Taxes: Middle of the Pack

Pennsylvania is one of the 37 states that collect property taxes at both the state and local levels. As in most states, local governments collect far more. Pennsylvania's localities collected $1,142.79 per capita in property taxes in fiscal year 2006, which is the latest year the Census Bureau published state-by-state property tax collections. At the state level, Pennsylvania collected $4.88 per capita during FY 2006, making its combined state/local property taxes $1,147.68, which ranks 20th highest nationally. State property tax collections per capita by state

Federal Tax Burdens and Expenditures: Pennsylvania is a Beneficiary State Pennsylvania taxpayers receive slightly more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of Federal tax collected in 2005, Pennsylvania citizens received approximately $1.07 in the way of federal spending. This ranks the state 28th nationally and represents a rise from 1995 when Pennsylvania received $1.05 per dollar of federal taxes paid and ranked 28th nationally.

Reference - Tax Foundation

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