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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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http://www.portal.state.pa.us/portal/server.pt/community/state_board_of_accounting/12502/l

Resolved Question:

http://www.portal.state.pa.us/portal/server.pt/community/state_board_of_accounting/12502/licensure_information/571992#forms - Initial firm registration application. we plan to run accounting firm as S corp and apply for Initial firm registration application. But I coud not find s corp firm type in section 1 under Initial firm registration application. In pa accounting firm can not be constructed as s corp? thanks
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Yes, in PA, if you want to be licensed by the state board of accountancy, you must register as a PC, or one of the other acceptable forms to the board.

PC's are taxed like a c corp, everything is taxed at 35%, HOWEVER, this is not necessarily a bad thing;

Salaries are considered tax deductible expenses and professional corporations typically pay 100% of income as salaries to shareholders or other kinds of benefits, thereby reducing their taxable income to zero.

PCs can create retirement plans and defined benefit savings plans with higher contribution limits than those available to sole owners and unincorporated businesses.



IRS will consider professional corporations as a PSC as long the business passes
two tests:

(1)function and (2)ownership

(1)The function test requires that 95 percent of the activities carried out by the business are services within the fields of health, law, accountancy, engineering, science, consulting or performing arts.

(2) The ownership test requires that the business' stock be owned by qualified people who either work or used to work for the corporation


Also, PCs get tax deductions for disability insurance, dependent care and other benefits supplied to its employees. In these cases the expenses are tax deductible to the corporation (and are not considered taxable income to the employees).


Not a bad deal....





Customer: replied 1 year ago.


okay, I am thinking of LLC type. what do you think of LLC vs pc?

Expert:  Lane replied 1 year ago.

I almost ALWAYS recommend LLC for new business.

Less paperwork that s-corp, don't have to do quarterly corp taxes, no need for payroll until. You start to hire to hire rank and file employees, you can do a simple schedule c if one member, or partnership return with K1 to distribute profits to multiple members.

Basically the flexibility of a partnership or sole proprietorship with the limited liability protection of a corporation.

An no double taxation, as with any pass-through.

A very good place to start.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thank you.

Good luck with it.


You know, state incorporation and election of tax reporting are two different issues.

If you have some specific reasons that you want to be an S-corp, you might want to check with the board and see if they'll elect s-corp taxation,

Registering in the state as an LLC and then electing S-corp taxation at the federal level is certainly possible as far as the IRS is concerned, but may be a licensing constraint with the state board.

My preference to start out would be an LLC anyway, gives you more time to focus on client acquisition, but you can check for future reference OR if you have some specific reasons for wanting to be an s-corp.

Here's the election form:
http://www.irs.gov/pub/irs-pdf/f2553.pdf


Thanks again,
Lane


Customer: replied 1 year ago.

Hi, I checked with pa State Board of Accountancy
they say that S corp can be accounting firm in pa

PO Box 2649

Harrisburg, PA 17105

Phone: (XXX) XXX-XXXX (State Board of Accountancy)

would you confirm this ? thanks

phone (NNN) NNN-NNNN/p>

Expert:  Lane replied 1 year ago.

You betcha.

Did they say why it's not on the form?

Is it because you're supposed to be registered in the state as one of those entities and then ELECT S-Corp taxation?

let me know what they said and I'll call them real quick.

Lane

Expert:  Lane replied 1 year ago.

Just spoke with them.

To become licensed with the board, you check the PC box (professional corporation), even though you may be registered at the state level as an S-Corp.

I asked twice and she verified, very specifically .....

In her words, "if they are an S-Corp, then they check the box for professional corporation on our application.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

thank you so much. I just wonder why they did not make corporation type in the list.

Customer: replied 1 year ago.

just curiousity, did you get the reason why s corp item is not listed ?

Expert:  Lane replied 1 year ago.

The lady I spoke with said she couldn't tell me, just that "if you're an s-corp you check the professional Corporation box."

Let me check a couple of things relative to that.

Be right back

Lane

Customer: replied 1 year ago.

thank you !

Expert:  Lane replied 1 year ago.

OK a little closer.

Talked to PA dept of revenue and they said sCorp election is automatic as along as fed level s-corp election is done.

I want to make one more call and see if the Dept of State in PA is going to REQUIRE that you register as a PC.

If they don't then I think the state board is just telling you that they won't recognize the liability protection typically afforded Corps because you are a profession that can be sure for malpractice/errors and omissions, etc.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

thank you for your confirmation! would you confirm if Dept of State in PA allows accounting firm in pa to be registered as s corp ? thanks

Expert:  Lane replied 1 year ago.

I just got off the phone with dept of state.

They tell me that in PA, CPAs must register as a professional corporation.

(Remember, however, that because of the ability to pass almost all revenue through as either salary, benefit costs or or other operating expenses that almost all C-Corps end up with a taxable income of zero).

But his words were "if a CPA sends in a corporate registration for S-Corp, it would be rejected or changed with an acceptance letter sent out.

Now, let me check ONE more thing, and we will have exhausted it.




Customer: replied 1 year ago.


Getting confused, In licence firm application, there is several firms type. thank you for your keeping search

Expert:  Lane replied 1 year ago.

When I sp/w the guy at dept of state, he said you had to register as a Professional Corp (but that WAS after telling him that you wanted to do S-Corp)

AND the folks at the accountancy board said, very specifically, that if you want to do a S-Corp, check the Professional Corporation box.

So we do have SOME continuity there.

I think what's unfolding here is that regardless which entity you register as, which is not a tax issue, but rather an incorporation (state law) issue, you're going to be treated as a Professional corporation for tax and liability purposes.

If you'll hang with me here, I'll call again tomorrow (and will be looking at the Federal taxation tonight) and I think we can pin it all down in the morning after I've spoken with both the board (maybe go a little higher than the front lines) and the dept of state one more time.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

thank you for your efforts. PA Accountancy board tells me If I am s corp, we can mark it in the PC item. if so, does it mean pa accountancy allows accounting firm to be licensed as s corp ? My only concern is that my acconting firm will be able to be legally licensed as s corp in PA. According to pa dept of state, if accounting firm should be registered as PC, why dose pa Accountancy board provide list of firm type to be chosen in firm license application ? This part dose not make sence to me. If you check pa accounting firm on internet, there are so many LLC, LLP, and Inc accounting firms as wells as PC. If you give me a final advice tomorrow, It would be really appreciated on it

Customer: replied 1 year ago.

I spoke to a representative at the Pennsylvania Department of State regarding corporations, and there is NO restriction for an accounting firm to be structured as an S corporation in Pennsylvania. would you confirm it ? thanks

Expert:  Lane replied 1 year ago.

Waiting on a call back, but as I said before, how you are incorporated and how you are taxed are two different things.

(1) The PA dept of state rep said to me, very specifically, that you, as an accountancy firm have to be a PC.

(2) And the state board of accountancy rep said, if you're an S-Corp, check PC.

So, as I said above, I think that you are going to be treated as a PC from a tax perspective and from a professional licensing board matter what.

I WILL get to the bottom. Two meetings today, but will be pushing both Dept of State and State board to get us something that reconciles.

Lane


Expert:  Lane replied 1 year ago.


OK, I have it.

Definitively.




(1) Register with the Dept of state as a Professional Corporation (They will ONLY register you as a Professional Corporation) (PC), because of your profession.

That's what they told me yesterday and I verified that with a supervisor today.



(2) Use this form to elect S-Corp treatment for tax purposes.

http://www.irs.gov/pub/irs-pdf/f2553.pdf



(3) PA department of revenue will automatically tax you as an S-Corp (Since 2006, in PA there is no separate election at the state level) ... they will tax you as an S-Corp because you have elected that at the federal level.



(4) Complete the complete the state board app by checking the PC (Professional Corp) box, as per their instructions



Your done.

BotXXXXX XXXXXne, you MUST do the dept of state registration first. Everything else flows from that.



Lane


Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3991
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

thank you for your great work ! we have one CPA licensee and two non-licensee and all want to have ownership in firm. so we can not set up PC. ( i think that only licensee can have ownership for PC) The state board seems to focuse on only cpa professional. As accounting firm, I think that LLC will be fine for registered for PA. thanks again!

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