How Do I Open a Business in PA | NJ | Delaware?
The choice of a business entity is one of the most important business decisions one will make. There are many important considerations, including but not limited to liability issues, taxation, tax pass-through status, entity ownership and the entity’s ability to have recourse or non-recourse loans (to name just a few).
It’s important to understand that the choice of entity could help you reduce your taxes. Business entities get many tax breaks. The government’s rationale, here, stems from a simple but very critical objective – businesses create jobs! So, there are hundreds of tax breaks out there, especially for small businesses.
Let’s take a closer look at the businesses at different stages of their life.
From a Business Start-up in PA to a Business Start-up in NJ and Other States
Let’s review certain tax benefits. Business Startup Costs in PA, as well as Business Startup Costs in NJ and many other states, can differ. You may have quite a number of expenses when you are just about to start your company in PA, or start your company in NJ.
You may have some educational, office, rental, travel expenses as well as legal and other professional costs. You may have to probably pay some consultants, accountants, and attorneys. All of these expenses are called startup costs.
However, it’s important to understand that normally you do not get to deduct these expenses until your business becomes “operational.” In other words, for the most part, you do not get to deduct them until you are “in business.” But if you plan well, you won’t lose this deduction.
Instead, you are able to “capitalize” all of these costs, creating an amortizable asset that you will be able to deduct over several years. But it’s important to start deducting your start-up costs as soon as possible, preferably in the first year, if you managed to begin your business operations in a short period of time.
For Many Businesses, to Organize LLC in PA, or Organize LLC in NJ Could be a Great Choice
A limited liability company (LLC) can be a great choice because for taxes purposes this entity type can be whatever you want it to be. Hence, the LLC has become the entity of preference for many firms in the United States, oftentimes because of its limited liability status and asset protection objectives. But how about taxes? Well, it’s good to know that your LLC can be whatever you want it to be – a Single Member LLC that operates just like a sole proprietorship (but enjoys its limited liability status), a Partnership, a C Corporation, as well as an S Corp.
If you want your entity to be treated as a sole proprietorship in the initial years when it still generates losses or has small income, so that you did not have to file an additional tax return, LLC can help you make it happen. It’s very flexible. And it’s flexibility is certainly an advantage! It’s important to understand that LLCs can be treated in a way you prefer it for tax purposes, and essentially combines the best of both worlds – your LLC has asset protection and can still get the tax advantages of a S Corporation, if it chooses to make an Election by a Small Business Corporation, filling the Form 2553.
If You Want to Open S Corporation in PA or Open S Corporation in NJ
When you are ready to change to an S Corporation, or have chosen this type of entity from the very beginning, you will reduce your employment taxes.
For example, in 2020, members of LLCs that are set up as sole proprietorship or partnerships have to pay self-employment tax at the 15.3% on the first $137,700 of net income, and 2.9% on net income over $137,700. S Corporations do not have to pay self-employment tax on their ordinary income. Neither does it have to pay taxes at the corporate level (as opposed to C Corporations which, in 2020, will have to pay at a flat rate of 21%).
In other words, in order to start a business in PA, or start a business in NJ you have to consider a lot of factors. Therefore, it is super important to choose a tax advisor in PA or tax preparer in NJ who will take time and will be knowledgeable enough to answer your questions about the pros and cons of different entity types.
At A+ Tax Experts, LLC, we are ready to educate you. We have devoted a big part of our lives to studying tax laws and regulations, teaching taxes, and using the tax code to help our clients reduce their tax liabilities.
I hope you have noticed how passionate we are about educating clients and reducing their taxes through our deep understanding of the nuances of the tax code. And this passion is probably one of the most important elements in reducing your taxes. Providing thoughtful and professional tax consulting, we can help you develop a successful business.