How to Start a Business in Pennsylvania or New Jersey
The entity you choose at the start — sole proprietorship, LLC, S corporation, or C corporation — shapes your liability protection, your taxes, and your options for years. It’s one of the most consequential decisions a founder makes, and one of the easiest to get wrong without advice. Here’s how we think about it.
Start-Up Costs: Don’t Lose the Deduction
Before you open your doors, you’ll rack up expenses — legal and professional fees, training, travel, office costs. These are start-up costs, and the tax code generally doesn’t let you deduct them until your business is actually operational. With planning, though, they aren’t lost: a portion can typically be deducted in your first year of operations, with the remainder capitalized and amortized over time. The key is keeping records from day one and timing your launch deliberately.
Why the LLC Is the Default Choice for Many Founders
The LLC’s appeal is flexibility. It provides limited liability from the start, and for tax purposes it can be whatever suits your situation: a single-member LLC taxed like a sole proprietorship (no separate federal return needed), a partnership, or — by filing Form 2553 — an S corporation. Many founders start simple while income is modest and elect S corporation treatment later, when the numbers justify it.
When an S Corporation Election Pays Off
Owners of LLCs taxed as sole proprietorships or partnerships pay self-employment tax on their net earnings — 15.3% up to the annual Social Security wage base (adjusted each year), and 2.9% Medicare tax above it. An S corporation changes the math: you pay yourself a reasonable salary (subject to payroll taxes) and take remaining profits as distributions that avoid self-employment tax. At the right income level, the savings are substantial — but “reasonable salary” is an IRS focus area, so this is a planning conversation, not a checkbox.
Registering in Pennsylvania vs. New Jersey
Each state has its own formation filings, annual obligations, and tax registrations — Pennsylvania’s Business One-Stop Shop and New Jersey’s business portal are the official starting points — and if you’ll operate in Philadelphia, add the city’s Business Income & Receipts Tax and Commercial Activity License to the list. We handle formation filings, EIN registration, and state and local tax accounts in both states, so nothing gets missed. For a step-by-step overview, see our guide on how to start a business in PA.
From Formation to Operations
Formation is the first step, not the last. New businesses need bookkeeping from day one, payroll as soon as the first hire arrives, and tax planning before the first year-end — not after. Because our firm is led by a tax attorney and IRS Enrolled Agent, we can advise on the legal and tax sides of these decisions together.
Frequently Asked Questions
Should I form an LLC or elect S corporation status right away?
Usually an LLC first: it gives liability protection immediately and preserves every tax option. The S election typically makes sense once profits comfortably exceed a reasonable salary for your role — we’ll run the numbers before you commit.
Do I need an EIN?
Almost certainly. You’ll need one to open a business bank account, hire employees, or elect S corporation status. We obtain EINs for clients as part of formation.
What Philadelphia taxes apply to a new business?
If you operate in the city, expect a Commercial Activity License plus Business Income & Receipts Tax and, for unincorporated businesses, Net Profits Tax. We register new businesses for all city accounts.
Thinking about launching? Contact us for professional tax consulting or call (215) 914-6929 — we’ll walk you through entity options before you file anything.