The Small Business Association in Pennsylvania reports that the state’s small businesses are responsible for employing approximately 2.4 million people a year, and most of those businesses were those who had fewer than 100 employees. The current reports issued by the SBA indicate that there has been a steady increase in the number of small businesses started each year since 2013. That means that it is good news for you if you have always wanted to start a business in Pennsylvania. If you want to start your own business will need to be smart about it, however. Even though the climate is conducive to small business success in PA, if you do not take the time to commit to proper planning and research ahead of time, you will not have an adequate foundation sufficient to withstand the stresses of running and supporting a viable business in the state. The following information can assist you in creating those first crucial components that will get your new business off to a good start.
Choose Your Pennsylvania Business Structure
The IRS wants to know how to tax you as a new business. Depending on which business structure you select, you could find yourself in over your head in tax debt. Most new businesses that are operated on a shoestring, and often out of a home with no storefront, opt for the sole proprietorship structure. This has the benefit of having less paperwork to file with both the federal and state governments, but the tax benefits are not as great as the other structures you could choose. Partnerships are businesses that are owned by two or more people who agree to share the burden of the business and to be taxed on the combined losses or profit. Limited Liability Partnerships offers the partners partial protection for personal assets. Limited Liability Companies (often referred to as LLCs) are very popular with new business owners because it offers more tax breaks than a sole proprietorship, and the owners have limited liability for the action of the company. Corporations are for small businesses that will eventually be large businesses. Most who begin a small business in Pennsylvania do not opt for the C-Corporation structure. S-Corporations, however, offer some of the best tax breaks, limited liability for the owner, and you pay state taxes on income at the individual level. This is a distinct advantage over a C-Corporation.
Evaluate Your Pennsylvania Business Idea
The old saying that you plan to fail when you fail to plan was never truer than with a new business startup. The idea may seem like a good one, until you put it down on paper and objectively evaluate the numbers. Do you have enough startup capital to begin? Where will working capital come from? What is a phase one, two, or three for your business? Does your business model allow for growth, and if you add in employees, do you understand the additional taxes that you will have to pay as a result? Lastly, who are your main competitors in your industry, and how do you propose to compete with them? Having someone who is knowledgeable about small businesses, or someone who is in your industry and is willing to mentor you is crucial to avoiding early mistakes. Good people to speak with include tax attorneys, and certified tax coaches.
Registering Your New Pennsylvania Business
In Pennsylvania, you have to provide the IRS with a taxpayer identification number (TIN). This can take the form of your Social Security Number, Individual Taxpayer Identification numbers, or an EIN (employer identification number). This is the number that you will use in all of your tax returns for the business. Aside from the SSN, you can obtain the other numbers through the IRS and filling out Form SS-4. You will also have to file a form to register your business’s name if it is different from your own. See the PA Department of State for that. A state business license will also have to be obtained for any structure other than a sole proprietorship. Other professional licenses and permits may be required by the state depending on what your business is. Also keep in mind that some counties and townships also require you to purchase a license. Not all require one, though, so you will have to check with the clerk’s office in your city. While at the clerk’s office you should also check to see if the place where you want to locate your business is zoned for commercial use.
Pennsylvania Small Business Taxes
Taking the time to understand the basic types of taxes you are going to be expected to pay, and why, can keep you from making many of the first-year business mistakes. Estimated taxes are going to have to be paid each quarter (or every three months). Your accountant can help you compute what that will be. If your projections end up being too high, then your accountant can readjust them and submit the proper paperwork to reflect the change. Failing to pay quarterly taxes can come back to cause you significant economic trauma come tax time. Keep in mind that businesses have to file their taxes before the personal tax deadline of April 15th. Taxes will also have to be paid for any employees you have in your business (called payroll taxes). A number of official forms (W-2,W-4, 1099, and I-9) will have to be kept on file for employees. If you sell goods in the state, then you’ll have to register for sales taxes.