When deciding on the type of legal structure a new business will take in Pennsylvania, there are many different factors to consider. Business owners are often most concerned about liability in the case of a lawsuit or the business going bankrupt. This compels many to consider corporations. Another consideration is how to share ownership and management of the business, such as in a partnership.
CNBC reminds business owners that they may also want to consider tax liability. The news agency points out that business owners may take advantage of a 20% reduction if they meet the criteria. Both limited liability and S-corp businesses may benefit from this reduction when they are pass-through entities. This refers to businesses that merely act as a way for legitimate business income to pass through to the owner(s). In the past, people paid as much as 39.6% in taxes on this income. However, qualifying for the reduction may change this.
To qualify more easily, individual incomes should fall below a $157,500 threshold. For married couples filing jointly, the threshold increases to $315,000. Almost any business may take the deduction when they fall below these thresholds. When incomes climb above the thresholds, some businesses may still qualify but under even greater restrictions.
Some business owners welcome the change, but then wonder which one to choose from. Should they create an S-corp or an LLC? Forbes points out that many people may not realize only the LLC is an actual business structure. The S-corp simply decides how an organization gets taxed.
Not all LLCs qualify for S-corp designation. Single-member LLCs are usually not eligible. If an LLC does qualify and elects to get taxed as an S-corp, it may save money on Medicare and Social Security taxes.