LLC vs S-Corp in Pennsylvania


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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LLC vs. S Corp in Pennsylvania

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in Pennsylvania. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in Pennsylvania. Before you start Pennsylvania LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with Pennsylvania LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in Pennsylvania.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in Pennsylvania?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in Pennsylvania gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in Pennsylvania?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in Pennsylvania?

In Pennsylvania, forming a business is crucial since you need to be adequate in your decision, especially when you think if Pennsylvania LLC or an S-Corporation in Pennsylvania is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in Pennsylvania doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.

LLCBuddy Editorial Team

Tax Difference Between Pennsylvania LLC and S-Corp in Pennsylvania

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in Pennsylvania is suitable for your business.

Federal Taxes: There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in Pennsylvania. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in Pennsylvania are the same in terms of pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners are required to pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in Pennsylvania are mandated to have double taxation. It means that they must pay federal taxes at the entity level.

Self-Employment Taxes: Most LLC owners choose S-corporation taxation in Pennsylvania to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes.

Consider the scenario where you are the only owner of an LLC in Pennsylvania with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a Pennsylvania S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

Pennsylvania State Taxes: At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in Pennsylvania, it costs $70 that can be paid to the RI Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $125 (by mail and online).

On the other hand, you also need to pay taxes if you form an S-Corporation in Pennsylvania; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the RI Secretary of State to pay this.

How do Pennsylvania LLCs and S-Corporations Handle Liability Protection?

In Pennsylvania, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in Pennsylvania. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in Pennsylvania.

  • Insurance business
  • Domestic and International sales corporations
  • Partnerships
  • Corporations
  • Unauthorized Immigrants
  • Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your Pennsylvania LLC or Pennsylvania S-Corp.

Which is Easier to File in Pennsylvania: LLCs or S-Corporations?

Filing an LLC or S-Corporation in Pennsylvania takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by Pennsylvania Registered Agent. However, in order to establish an LLC in Pennsylvania, you must submit a Certificate of Organization to the Pennsylvania Department of State. Your Certificate of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the Pennsylvania S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in Pennsylvania because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in Pennsylvania, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Pennsylvania, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

FAQs

What are the differences between LLCs and S-Corps in Pennsylvania?
LLCs are treated as pass-through entities, meaning that the LLC itself is not taxed on its income. Instead, all income, deductions, and losses are passed through to the individual members and taxed on the members’ personal tax returns. An S-Corporation, on the other hand, is subject to corporate income tax, which is paid at the corporate level. In addition, S-Corporations are subject to certain restrictions and additional compliance requirements, such as shareholder limits and annual reporting requirements.
What taxes must be paid for an LLC in Pennsylvania?
LLCs in Pennsylvania are subject to both federal and state taxes. At the federal level, LLCs must pay income taxes, self-employment taxes, and possibly other taxes depending on the type of business operations. At the state level, LLCs must pay the Pennsylvania state Corporate Net Income Tax, as well as any applicable county or municipal taxes.
Is an LLC required to file a separate tax return in Pennsylvania?
No, an LLC is not required to file a separate tax return in Pennsylvania. Instead, the LLC’s members are responsible for reporting their respective shares of the LLC’s income, deductions, and losses on their personal tax returns.
What are the benefits of forming an S-Corporation in Pennsylvania?
There are several potential benefits of forming an S-Corporation in Pennsylvania. First, S-Corporations are usually eligible for special tax benefits, such as the ability to pass income and losses through to their shareholders. Additionally, S-Corporations are generally more flexible in terms of ownership, as they can have an unlimited number of shareholders. Finally, S-Corporations may be able to shield their owners from personal liability.
What are the requirements for forming an S-Corporation in Pennsylvania?
In order to form an S-Corporation in Pennsylvania, the business must meet certain requirements. First, the business must be incorporated in Pennsylvania. Additionally, the business must have no more than 75 shareholders, all of whom must be individuals, estates, or certain kinds of trusts. Finally, the business must file a special tax election with the IRS in order to be taxed as an S-Corporation.
Are S-Corporations required to pay dividends in Pennsylvania?
No, S-Corporations in Pennsylvania are not required to pay dividends. However, they may choose to pay dividends if they wish. If they do, the dividends must be paid in proportion to the shareholders’ ownership interests.
What are the benefits of forming an LLC in Pennsylvania?
There are several potential benefits of forming an LLC in Pennsylvania. First, LLCs offer limited liability protection to their owners, shielding them from personal liability for business debts and liabilities. Additionally, LLCs are pass-through entities, meaning that the LLC itself is not taxed on its income. Finally, LLCs are relatively easy to form and maintain, and require less paperwork than other business entities.
What are the advantages of forming an LLC in Pennsylvania?
Advantages of forming an LLC in Pennsylvania include limited liability protection, flexible management structure, and pass-through taxation.
What are the advantages of forming an S-Corp in Pennsylvania?
Advantages of forming an S-Corp in Pennsylvania include the potential for more tax savings, the ability to pay yourself a salary, and reduced corporate formalities.
What is the filing fee to form an LLC in Pennsylvania?
The filing fee to form an LLC in Pennsylvania is $125.
What is the filing fee to form an S-Corp in Pennsylvania?
The filing fee to form an S-Corp in Pennsylvania is $125.
What is the annual fee for LLCs in Pennsylvania?
The annual fee for LLCs in Pennsylvania is $250.
What is the annual fee for S-Corps in Pennsylvania?
The annual fee for S-Corps in Pennsylvania is $250.
Is there a personal income tax in Pennsylvania?
Yes, there is a personal income tax in Pennsylvania.
Are LLCs required to pay corporate income tax in Pennsylvania?
No, LLCs are not required to pay corporate income tax in Pennsylvania.
Are S-Corps required to pay corporate income tax in Pennsylvania?
Yes, S-Corps are required to pay corporate income tax in Pennsylvania.
Is there a franchise tax in Pennsylvania?
No, there is no franchise tax in Pennsylvania.
How many members can be in an LLC in Pennsylvania?
There is no limit to the number of members that can be in an LLC in Pennsylvania.
How many shareholders can be in an S-Corp in Pennsylvania?
The maximum number of shareholders that can be in an S-Corp in Pennsylvania is 75.
Are there any restrictions on who can be a member or shareholder in an LLC or S-Corp in Pennsylvania?
No, there are no restrictions on who can be a member or shareholder in an LLC or S-Corp in Pennsylvania.
What are the formalities for LLCs in Pennsylvania?
The formalities for LLCs in Pennsylvania include filing articles of organization with the Pennsylvania Department of State and creating an operating agreement.
What are the formalities for S-Corps in Pennsylvania?
The formalities for S-Corps in Pennsylvania include filing articles of incorporation with the Pennsylvania Department of State, obtaining a federal employer identification number, and creating bylaws.
Is there a minimum capital requirement for LLCs in Pennsylvania?
No, there is no minimum capital requirement for LLCs in Pennsylvania.
Is there a minimum capital requirement for S-Corps in Pennsylvania?
No, there is no minimum capital requirement for S-Corps in Pennsylvania.
Are LLCs and S-Corps in Pennsylvania required to hold annual meetings?
Yes, LLCs and S-Corps in Pennsylvania are required to hold annual meetings.
What is the process for dissolving an LLC or S-Corp in Pennsylvania?
The process for dissolving an LLC or S-Corp in Pennsylvania includes filing dissolution documents with the Pennsylvania Department of State and notifying any creditors.
Is there a tax on income generated from an LLC or S-Corp in Pennsylvania?
Yes, there is a tax on income generated from an LLC or S-Corp in Pennsylvania.
Is there a requirement to keep corporate records in Pennsylvania?
Yes, there is a requirement to keep corporate records in Pennsylvania.
Does Pennsylvania recognize single-member LLCs?
Yes, Pennsylvania recognizes single-member LLCs.
Are LLCs and S-Corps in Pennsylvania required to pay estimated taxes?
Yes, LLCs and S-Corps in Pennsylvania are required to pay estimated taxes.
What type of insurance do LLCs and S-Corps in Pennsylvania need to carry?
LLCs and S-Corps in Pennsylvania need to carry liability insurance.

Also Read

Why Pennsylvania LLC Vs S Corp is So Important

One key consideration when choosing between an LLC and an S Corp is liability protection. Both structures provide liability protection for business owners, meaning that personal assets are generally shielded from business debts and legal obligations. However, the level of protection afforded by each structure may differ. An LLC typically offers a higher degree of liability protection than an S Corp, as LLC members are not personally liable for the debts and obligations of the business. In contrast, S Corp shareholders can be held personally liable for certain claims against the company. As such, selecting the right structure can help ensure that a business owner’s personal assets are adequately safeguarded.

Another important factor to consider when deciding between an LLC and an S Corp is taxation. LLCs are considered “pass-through” entities for tax purposes, meaning that profits and losses are passed through to the owners’ personal tax returns. This feature can be advantageous for some businesses, especially small startups and family-owned ventures, as it can help minimize the overall tax burden. On the other hand, S Corps are subject to certain tax obligations that can be more complex and burdensome. Owners of an S Corp must pay themselves a reasonable salary, on which they must pay payroll and income taxes. Any remaining profits are distributed to shareholders as dividends, which are subject to taxes at the individual level. Thus, the choice between an LLC and an S Corp can have a significant impact on a business’s tax liabilities and obligations.

Moreover, the operational flexibility afforded by an LLC can be a determining factor for business owners. LLCs are generally less formal and are not subject to the same strict requirements and regulations as S Corps. This can make them an attractive option for entrepreneurs looking to maintain flexibility in their business operations. Additionally, LLCs can have a more straightforward management structure and do not require the same level of corporate governance as S Corps. This can be advantageous for businesses seeking to minimize bureaucratic hurdles and streamline decision-making processes.

Ultimately, the choice between a Pennsylvania LLC vs S Corp is not one to be taken lightly. Each structure comes with its own set of advantages and disadvantages that can significantly impact a business’s operations, finances, and legal obligations. As such, business owners should carefully consider their specific needs, goals, and circumstances before making a decision. Consulting with a legal and financial advisor can help ensure that entrepreneurs select the right structure for their business to set them up for success in the long run.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in Pennsylvania, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a Pennsylvania LLC and S-Corp in Pennsylvania, read our other business guides.

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