Once you start your business, you will have to start paying certain taxes to both the federal government and the Commonwealth of Pennsylvania. The specific taxes you are required to pay or remit depend on your type of business. The Pennsylvania Department of Revenue website provides information on business taxes.

Do I need a sales tax number and how do I register for one?

If you sell tangible personal property, or provide certain fabrication, rental, or other particular services, you must obtain a sales tax identification number, also known as a seller's certificate, from the State of Pennsylvania. To obtain the appropriate forms you may visit the Pennsylvania Revenue Services website or you can (717) 787-1064. If wholesalers and retailers are reselling your product(s) you would not charge sales tax, but would provide them your sales tax number for a resale certificate.

If I am self-employed, how do I report my taxes?

Self-employed business owners are required to pay state and federal income taxes, Social Security, and Medicare based on the profits generated by the business. Profits in a proprietorship are determined before you draw compensation from the business (i.e. your draw or wages are not considered an expense of the business.) Once your liability for federal income tax and self-employment FICA exceeds $5000, you will need to deposit the tax payments to the IRS. You can estimate and report your federal taxes by using the 1040-ES form, and your state taxes by using the 1040ES-ME form.

Which business expenses can I deduct for income tax purposes?

Generally, all the expenses you incur to start and operate your business are deductible, however many are subject to various IRS rules; for example, start-up costs, vehicle expense, meals and entertainment, and use of a home office. Start by reading IRS publications (such as the Business Tax Kit) and looking at the tax returns for your form of business.

Can I hire my children or relatives and get a tax deduction?

Yes. This is a common practice of small family owned businesses. As long as the child or relative is performing some needed service for the business and is paid approximately what a non-relative would be paid for the same work, it is allowed.

Can I buy a new car in my business and get a tax deduction?

Yes, provided the car is used in the business. If it is used exclusively in your business, you can deduct all of its cost and operating expenses. If it is used partly for business and part for personal use, you can allocate the business portion and claim a percentage of its cost and expenses.

If I operate my business from my home, what can I deduct from my taxes?

You can deduct all regular expenses associated with your business. This is no different from operating your business from a location outside your home. Consult IRS Publication 334, the IRS, a CPA, a tax lawyer, or some other source familiar with these rules.

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