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Tax Center
 Once you have made the commitment to go into business, you should obtain the advice and guidance of a good accountant or tax professional.
Small businesses face a variety of tax issues. Tax law changes constantly, making it difficult for a small business owner to keep up.
In addition to federal income tax, businesses are subject to various types of state and local taxes, including income, franchise and/or sales taxes. If you have employees, you must deal with payroll taxes, including not just payments but information filings to the government and your employees. Many businesses also face specific excise taxes. Even your type of business (sole proprietor, partnership, LLC) affects your taxes.
This page is intended to help small businesses keep up-to-date.
IRS Unveils New Applications for Small Businesses
The IRS has new tools to help small business owners better understand and meet their tax responsibilities.
Source: IRS.gov.
The Governor's Proposed Budget
Feb 9—Governor Edward G. Rendell's 2010-11 budget may affect your buisness. Proposed changes include:
- Enacting a competitive tax on natural gas drilling;
- Taxing tobacco products such as smokeless tobacco and cigars;
- Cutting the Sales and Use Tax rate from 6 percent to 4 percent by eliminating exemptions and including services;
- Reducing the Corporate Net Income Tax rate from 9.99 percent to 8.99 percent and enacting other reforms by adopting combined reporting; and
- Ending the practice of giving vendors a discount for paying sales taxes in accordance with the law.
The vendor discount for on-time sales tax payments will be terminated July 1, 2010 and the rest of the tax changes will go into effect September 1, 2010. More details on the budget are available on the governor's website.
Source: 2010-11 Executive Budget Facts
IRS Plan for Random Business Audits
Beginning in February 2010, the IRS will start a three-year, random employment tax audit of 6,000 returns, covering small, medium and large businesses in all industries. The goal is to help close the $345 billion tax gap. The IRS plans to focus on five employment areas: Worker classification, fringe benefits, non-filers, officer compensation and employee expenses reimbursement plans.
Detailed records are key for business owners that receive an audit notice.
Source: Ocala Business Journal
Charitable Contributions for Haiti
The IRS offers guidance for businesses that wish to contribute relief funds for victims of Haiti's earthquate. These funds may be tax deductible. Read more on the IRS website.
Proposed New Requirements for Tax Return Preparers
The IRS is proposing new requirements for tax preparers beginning in 2010. Please refer to the IRS website for details. Based on the results of the Return Preparer Review, the IRS recommends a number of steps that it plans to implement for future filing seasons.
Business Gift Expenses
As a small business owner, you may find yourself giving gifts to clients and customers in the course of your business, particularly around the holidays. While you can deduct the cost of certain gifts as a business expense, there are substantial limitations on what you can deduct. Winmark Business Solutions offers a business gift expense guide covering employee gifts to entertainment expenses to help you remember the rules.
Tax Implications
of Your Health Care Options
While Congress debates major health care
reform, businesses must plan for medical
coverage now. VenturePad's Barbara Weltman offers this white paper to help you think through your options.
What Changed with the Recovery Act of 2009
This Februrary, President Obama signed a $787 billion economic stimulus plan known as the American Recovery and Reinvestment Act (ARRA) of 2009. This means that changes are coming that can impact your payroll and your taxes.
Some key highlights for small businesses:
We recommend that you review this IRS webpage which posts several other changes related to the Recovery Act. More information will be available on IRS.gov as it becomes available.
To keep up with ARRA and other IRS tax news, we recommend that you subscribe to e-News for Small Businesses.
Visit our online learning page to view available tutorials on this subject.
Could the new law affect 2008 tax returns? Generally, no, but there are a few limited areas in the law that could impact 2008 tax returns. For some small businesses, changes in the net operating loss provisions could affect 2008 tax returns. Most of the changes will affect 2009 tax returns filed next year.
The IRS offers General Questions and Answers Regarding the Recovery Package on IRS.gov.
See the Frequently Asked Questions and Payroll and Other Developments for more information.
Want to start a business but unsure of your tax responsibilities?
Review the IRS's top seven tax tips for new businesses.
Where are more details on the tax provisions of the recovery law?
A summary of the key provisions is available from the Senate Finance and House Ways and Means committees. The IRS will be providing more details on this web site as they become available.
Major Tax Areas
 Just getting started? Our friends at Business Owner's Toolkit provide an overview of each of the major taxes to which you and your business may be subject, including tips for avoiding problem areas and for saving your tax dollars. You'll find the information useful for resolving a specific tax question or for identifying issues you may want to raise with your tax pro.
- Your payroll tax obligations - federal, state, and local taxes that you're required to collect or pay whenever you hire your own employees.
- Your federal income tax obligations - the role that income tax planning plays in your daily business operations.
- Your sales tax obligations - state and local taxes that you are required to pay on your purchases and to collect on your sales of merchandise or other tangible personal property and certain services.
- Your state tax obligations - get a working knowledge of your own state and local taxes, as well as the necessary licensing and initial business formation fees and filings on a state-by-state basis.
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Business Structures
Many factors must be considered when choosing the best form of business ownership or structure. The choice you make can have an impact on multiple aspects of your business, including taxes, liability, ownership succession, and others.
The U.S. Small Business Administration website has an overview of the structures that lists advantages and disadvantages to consider.
For an overview of business structures, visit the IRS website.
Is it better for a company to organize as an LLC rather than an S Corp? What are the differences between an LLC and an S Corp?
The answer to this question depends on specific facts and circumstances, but some general guidelines follow:
Ownership
- LLC – Can have an unlimited number of owners, called members.
- S Corp. – Limited to 100 owners (shareholders), who must be individuals.
Multiple Classes of Ownership
- LLC – Can have multiple classes of membership ownership, each with different rights and profit allocations.
- S Corp. – Restricted to having only one class of stock, although differences in voting rights are permitted.
Governance / Formality
- LLC – Limited to a certificate of organization with state and an operating agreement outlining how LLC will be run, rights of members, etc.
- S Corp. – Requires more formal governance agreements, including filing articles of incorporation with state, maintaining bylaws, holding board of directors and/or shareholder meetings, maintaining minutes for such meetings, etc.
Limited Liability Protection
- LLC – Generally provide limited liability protection to members to extent of capital investment. However, for professionally licensed organizations such as a medical practice, a member will be personally liable for negligence or wrongful acts committed by him/her but not for such acts committed by other members (advise that you check with attorney).
- S Corp. – Generally provide limited liability protection to members to extent of capital investment However, for professional corporations – owned by licensed professional such as doctors that provide medical services – an owner/doctor will be personally liable for negligence or wrongful acts committed by him/her but not for such acts committed by other owners/doctors (advise that you check with attorney).
Fringe Benefits
- LLC – Significant limitations on receiving nontaxable fringe benefits, such as health insurance, life insurance, disability insurance, long-term care insurance, etc.
- S Corp. – Significant limitations for more than 2 percent shareholders on receiving nontaxable fringe benefits, such as health insurance, life insurance, disability insurance, long-term care insurance, etc.
Self-Employment Tax
- LLC – Members are generally subject to self-employment tax on their share of the LLC’s income.
- S Corp. – Shareholders are not subject to self-employment tax on their share of the corporation’s earnings. However, for a medical practice comprised of owner/employee doctors, the amount of profits may be minimal since reasonable salaries must be paid to the doctors, and such salaries may absorb the practice’s profits.
Income Allocation
- LLC – Composed of two or more members, they are taxed as partnerships and may allocate income differently among members.
- S Corp. – Profits are allocated on a per share basis, with no opportunity for special income allocations.
Source: Pennsylvania Institute for Certified Public Accountants (PICPA)
We've compiled a list of business-specific tax questions on our website but recommend our friends at the Pennsylvania Institute for Certified Public Accountants (PICPA) as a great source for general answers to business owners' most frequently asked business management questions.
PICPA also offers a Q&A specifically for individual and business tax-related provisions in the American Recovery and Reinvestment Act of 2009.
Download the Q&A
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2009 Payroll and Other Important Tax Developments
A number of changes have been implemented by Congress, the Internal Revenue Service, and other authorities for calendar year:
- Social Security Tax (FICA)
- Federal Unemployment Tax (FUTA)
- Pennsylvania Unemployment Tax
- State Income Tax – Pennsylvania
- Paperless Filing Options – Pennsylvania
- Ohio and West Virginia Unemployment Tax
- Qualified Retirement Plan Cost of Living Adjustments for 2009
- Social Security Recipients
- Legislative Updates Regarding Pension Plans
- Form 1099 Filing Requirements
- Forms W-2/W-3 Filing Requirements & Changes
- Standard Mileage Rate
- Payroll Tax Deposits
- Social Security Numbers for Dependents
- Deadline for Depositing Participant Contributions to Employee Benefits Plans
Download fact sheet
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IRS Resources
IRS.gov announced a number of new resources to help small businesses and the self-employed:
Pennsylvania Department of Revenue
As with federal tax information, you'll want to go straight to the source to say current with changes to state taxes. You can sign up for the Department of Revenue’s bi-monthly e-newsletter on their website.
Pages that you may want to bookmark include:
Curious about how Pennsylvania compares to other states? Read the Small Business and Entrepreneurship Council's Business Tax Index 2009:
Best to Worst State Tax Systems for
Entrepreneurship and Small Business.
Helpful Links
- The IRS publishes the Tax Guide for Small Businesses which can help you understand how to set up a bookkeeping system, and record and report income and expenses.
- You may also find it useful to visit our Accounting & Bookkeeping FAQs
- Some useful information on getting the most out of an accurate, up-to-date bookkeeping system, and managing your business finances can be found at BizMove.com.
- Additional information about business expenses can be found in the IRS publication Business Expenses.
- The most common management systems for small businesses are QuickBooks, Peachtree, and Microsoft Dynamics. Explore trial versions of each program and discuss each one with your tax professional before purchasing the software.
- Looking for a CPA? Our partners at the Pennsylvania Institute of Certified Public Accountants have a free CPA Locator on their website.
- The Clarion University SBDC Knowledgebase also offers a wealth of information, resources, and links related to your business's tax strategy.
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