×
tax forms found in
Tax Form Code
Tax Form Name

Pennsylvania Free Printable Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes (REV-588) for 2024 Pennsylvania Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes

The tax filing deadline of April 16th is here! - eFile your return online here , or request a six-month extension here .

It appears you don't have a PDF plugin for this browser. Please use the link below to download 2023-pennsylvania-form-rev-588.pdf, and you can print it directly from your computer.

Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes
Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes (REV-588)

REV-588 (TS) 08-23 STARTING a BUSINESS in PENNSYLVANIA A GUIDE to PENNSYLVANIA TAXES Dear Taxpayer, Welcome to Pennsylvania’s business community. We want to thank you for bringing growth and innovation to our local economy. Whether you are starting a brand new business or you are a new business owner purchasing an existing business, you will need to know some basic information about Pennsylvania state tax laws and regulations. The Department of Revenue has created this guide to help business owners understand their filing obligations. The guide outlines the procedures to follow and the forms to file with the Pennsylvania Department of Revenue. Your responsibilities as a new business owner will vary depending on the type of organization or entity you operate. Certain types of businesses will need to immediately register for some business taxes in Pennsylvania while others may only need to report Pennsylvania income. Please review the information in this booklet to help determine which taxes apply to your business. This guide is not intended as a substitute for services of tax and legal professionals nor is it intended to replace the Pennsylvania Business One-Stop Shop, located at www.business.pa.gov. This helpful resource connects entrepreneurs with important information on registering, operating, and growing a business. The website’s digital library includes a link to the Entrepreneur’s Guide: Starting and Growing a Business in Pennsylvania, which provides detailed information, instructions, and personalized business checklists for entrepreneurs to help build a successful business. For more information, visit our website at www.revenue.pa.gov or call our Customer Experience Center at 717-787-1064. The department wishes you success in your future endeavors. Sincerely, Department of Revenue revenue.pa.gov TABLE OF CONTENTS IMPORTANT: This guide is published by the Pennsylvania Department of Revenue to provide information to business owners on how to register their business. It also provides an understanding of various tax obligations, as well as common mistakes to avoid. The guide is for informational purposes only and is not intended to constitute legal advice. This guide will cover three general areas that apply to many businesses: Business Taxes in Pennsylvania Registering for Business Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales Tax License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Use Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exemption Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 5 6 7 9 2 Reporting Pennsylvania Income Business Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Limited Liability Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses and Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Business Start-up Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Vehicle Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • Business Use of Your Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 11 11 12 13 15 15 16 17 17 20 3 Strategies for Success Take Advantage of Electronic Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . Keep Good Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Open Accounts for Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Update Your Address Regularly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obtain a Bulk Sales Clearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Know Who to Contact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 23 25 25 26 26 1 To receive email notifications containing links to newly posted tax information, including publications, important notices, and tax bulletins issued by the department, visit www.revenue.pa.gov and click on the “PA Tax Update Newsletter” link to register to receive this information. BEFORE REGISTERING YOUR BUSINESS WITH THE DEPARTMENT OF REVENUE: 1. Confirm requirements with your financial institution and insurance company. 2. Check for special registrations, if applicable. 3. Confirm your professional licensure is current.* *Only applicable to Professional LLCs or Professional Corporations. All other business structures, skip to the next step. . Check with the local municipality concerning taxes, 4 zoning requirements, local licenses and permits, and any other regulations.* *It is important to complete this step before proceeding with your business registration. 5. Register your business structure.* *Make sure you have verified the business name you wish to use is available. 6. Register your Fictitious Name.* *Only required if operating under a name that is not the Legal Name of the business or sole proprietor. 7. Apply for a Federal Employer Identification Number (FEIN). For a more personalized checklist, visit business.pa.gov/register. SECTION 1 BUSINESS TAXES in PENNSYLVANIA BUSINESS TAXES IN PENNSYLVANIA Registering for PA Tax Accounts Depending on your specific activities, your business may be required to report items such as sales and use tax or withholding tax. To register your business for state tax and withholding accounts in Pennsylvania, you will complete the Pennsylvania Online Business Tax Registration form available at myPATH.pa.gov. IMPORTANT: You cannot use the Online Business Tax Registration to: • Register your name with the Department of State, Bureau of Corporations and Charitable Organizations • Apply for Sales Tax Exempt Status (REV-72) This registration is also used by new entities that are acquiring all or part of an existing entity that has been assigned a new FEIN by the Internal Revenue Service. If the business entity or individual 1 Starting a Business in Pennsylvania is already registered to use myPATH, login to myPATH and use the Register New Business Tax Accounts feature. This includes individuals registered for myPATH for personal income tax purposes looking to register a business as a sole proprietorship for business taxes. New customers are able to register for various taxes and services without logging in to myPATH. Existing customers will need to log into myPATH to register for additional taxes or services. Taxes and services include: • Alternative Fuels Tax • Business Use Tax • Corporation Taxes • Fuel Transporter Permits revenue.pa.gov • Motor Carrier Road Tax (MCRT) • Motor Fuels Tax • International Fuel Tax Agreement (IFTA) • Promoter License • Public Transportation Assistance Taxes and Fees • Sales, Use, and Hotel Occupancy Tax • Tobacco Products License • Transient Vendor Certificate • Unemployment Compensation • Vehicle Rental Tax • Withholding Taxes: ‫ ڤ‬Employer Withholding, ‫ ڤ‬Other Income Withholding (1099 MISC and NEC), or ‫ ڤ‬Retirement Withholding (1099R) • Workers’ Compensation Coverage • Wholesaler Certificate • The Federal Employer Identification number (FEIN) issued by the Internal Revenue Service, if applicable. Additional information on obtaining an FEIN can be found at IRS.gov • Department of State entity number, if applicable • The business addresses and contact information • Banking information for Tobacco Products License fees, if applicable • The name(s), home address(es), and Social Security Number or Individual Taxpayer Identification Number of the owners/ officers/other responsible parties. If you’ve received a Registration Required letter from the department, make sure to have the Letter ID readily available. New registrants can complete the PA Online Business Registration directly from the myPATH homepage. Registered enterprises should create a myPATH profile and log in to select the Register New Business Tax Accounts hyperlink from their logged in profile. You will receive your account number(s) via e-mail. NOTE: Registering corporations must also contact the PA Department of State to secure a corporate name clearance and register for corporation tax purposes. You must provide a FEIN to the Department of State during registration in order to be registered to file and pay corporate taxes. Associations and individuals desiring to do business in Pennsylvania may have to apply to the Secretary of the Commonwealth for authority to conduct business, incorporate, organize, or file an assumed or fictitious name through the Bureau of Corporations and Charitable Organizations of the Department of State. For more information, visit the Department of State at dos.pa.gov. How to Avoid Delays in Processing • Review the registration form and accompanying sections to be sure that every item is complete. NOTE: It is your responsibility to notify the department in writing within 30 days of any change to the information provided on the registration form. How to Check the Status To check the status of your registration, you will need your Confirmation Code and email address. Visit myPATH.pa.gov and select What’s the Status of my Registration from the Registration panel on the myPATH homepage. Tips to Complete the PA Online Business Tax Registration Before you begin the registration process, you will need the following: • The legal name of the business • The name by which the business is doing business as (commonly known as, trading as, also known as), if applicable myPATH.pa.gov 2 BUSINESS TAXES IN PENNSYLVANIA Withholding Tax Employee Compensation If you employ one or more persons, your business needs to register for an Employer Withholding Account. Pennsylvania law requires employers to withhold and remit PA personal income tax from employees’ compensation in two common cases: • When resident employees perform services within or outside PA; and • When nonresident employees (other than residents of Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia, and from whose wages you withhold at the reciprocal state’s tax rate) perform services within PA. An employer is any individual, partnership, association, corporation, government body or other entity that employs one or more persons and is required under the Internal Revenue Code to withhold federal income tax from wages paid to an employee. Please review the Employer Withholding Information Guide (REV-415) for more information on withholding PA personal income tax. NOTE: Employers are also required to register for unemployment compensation insurance tax, imposed on employers and employees to help support employees for loss of wages should they become unemployed through no fault of their own. The rate is based on the employment history of the company. This tax is administered through the PA Department of Labor & Industry. Filing & Payment Requirements Employers should withhold taxes from each paycheck and remit to the department according to the Withholding Payment Schedule as follows: • Semi-Weekly – If total withholding is $5,000 or greater per quarter ($20,000 per year), the taxes are due on the Wednesday following the pay dates for employers whose paydays fall on a Wednesday, Thursday, or Friday; and on the Friday following the pay dates for employers whose paydays fall on Saturday, Sunday, Monday, or Tuesday. 3 Starting a Business in Pennsylvania • Semi-Monthly - If total withholding is $1,000 to $4,999.99 per quarter, the taxes are due within 3 banking days of the close of the semi-monthly period. • Monthly – If total withholding is $300 to $999 per quarter, the taxes are due the 15th day of the following month. • Quarterly – If total withholding is under $300 per quarter, the taxes are due the last day of April, July, October, and January. Filing a Quarterly Withholding Return (W-3) The Employer Withholding Return (W-3) is required to be electronically filed every quarter even when no wages were paid during that period. Each W-3 should reconcile the total amount of withholding remitted within each quarter. Filing an Annual Withholding Reconciliation Statement (REV-1667) Employers are also required to electronically file annual reconciliation returns (REV-1667) by January 31 along with the W-2 forms for each employee. The REV-1667 should reconcile the total amount of withholding remitted for the entire tax year according to the W-3s filed. Non-Employee Compensation If you make payments to a nonresident who is not your employee for services in the course of your trade or business, you may be required to withhold PA personal income tax. NOTE: Withholding is optional for payments less than $5,000 annually. However, if you are unsure of the total amount of payments that will be made during the year, the department encourages you to withhold and remit income tax from all payments made. Governmental payors, including the Pennsylvania State System of Higher Education and its institutions, are exempt from the requirement of withholding on non-employee compensation and business income. For more information on non-employee compensation, please visit our website at www.revenue.pa.gov. How to File Employers can file and pay business taxes online using myPATH. myPATH is an online portal that offers a suite of features and services, which allows taxpayers to fulfill their tax filing obligations. Sign up for a username and password for the following: • View, file, and pay taxes • Add new accounts to an existing business • Update names and addresses • Maintain officers/responsible parties • View correspondence • Request statements of account 1 NOTE: Tax payments of $1,000 or more must be remitted electronically through electronic funds transfer or by credit/debit card, or they may be paid with certified or cashier’s checks. 2 Starting at revenue.pa.gov, click the icon labeled “myPATH” You are now ready to enter myPATH to either sign-in or create an account 4 BUSINESS TAXES IN PENNSYLVANIA Sales Tax If your business sells taxable items or performs taxable services, you are required to obtain a sales tax license. Taxable items are subject to a 6% sales tax. Additionally, retailers in Allegheny County are required to collect an additional 1% local sales tax and retailers in Philadelphia are required to collect an additional 2% local sales tax. All three sales taxes are reported on the same tax return and under the same sales tax Account ID. To determine if your business is required to collect and remit sales tax, review the Retailer’s Information Guide (REV-717) or visit our website at www.revenue.pa.gov for more information on sales tax. Filing & Payment Requirements Sales tax must be collected at the time of sale, unless the sale is on credit. Taxes due on credit sales must be remitted within 30 days of the date of sale. A seller is liable for reporting and remitting taxes and fees with the tax return covering the period in which either a taxable sale was made or the tax, or fee, should have been collected. The filing frequency may vary. When you are a new sales tax filer, you are set up as a quarterly filer, meaning that your returns are due in April, July, October, and January. But your filing frequency can change. Every year the department reviews each business that files returns to determine whether or not the filing frequency should be changed. If such a change is made by the department, the business is notified in writing. Payments and reports are required from sales tax licensees as follows: • Monthly returns with pre-payment obligations – Businesses that have an actual sales/use tax liability for the third calendar quarter of the previous year totaling at least $25,000 but less than $100,000 have two prepayment calculation options. They can either remit payment equal to 50% of the actual tax liability from the same month of the previous year or at least 50% of the actual tax liability for the current period. Businesses remitting more than $100,000 for the third calendar quarter of the previous year must remit 50% of the actual tax liability due from the same month of the previous year. Prepayments are due by the 20th of the current month and returns for the period are due on or by the 20th of the following month. 5 Starting a Business in Pennsylvania • Monthly returns – Licensees whose actual tax liability is less than $25,000, but greater than $600 per quarter, must file monthly. Monthly returns are due the 20th day of the month that follows the month in which the tax was collected. • Quarterly returns – Licensees whose total tax liability is less than $600 in the third calendar quarter, but greater than $300 annually, must file quarterly. The report for January, February, and March is due by April 20; the report for April, May, and June, is due by July 20; the report for July, August, and September is due by Oct. 20; and the report for October, November, and December is due by Jan. 20. • Semi-annual returns – Licensees whose total tax liability is $300 or less annually must file semi- annually. The report for January through June is due on Aug. 20, and the report for July through December is due Feb. 20 of the following year. NOTE: Tax payments of $1,000 or more must be remitted electronically through electronic funds transfer or by credit/debit card, or they may be paid with certified or cashier’s checks. NOTE: It is important to know your filing and payment frequency. The Department of Revenue offers a vendor discount for timely filed returns and payments. This discount is limited to a flat rate or 1% of tax collected, whichever is lesser. • Monthly Filers: $25 or 1% of tax • Quarterly Filers: $75 or 1% of tax • Semi-Annual Filers: $150 or 1% of tax How to File The department offers two electronic filing options: myPATH and third party vendors. The department also has third party vendors who will provide e-filing software for those taxpayers who do not wish to use the department’s e-filing options. A list of approved software vendors is available on the department’s website at www.revenue.pa.gov. revenue.pa.gov Sales Tax License Displaying Sales Tax Licenses All businesses selling products and services subject to sales tax are required to prominently display the license at the business. Sales tax licenses are issued free of charge and are renewable every five years. The Department of Revenue is authorized to issue citations to anyone who operates a business without a valid and current sales tax license. Convictions could result in fines of $300 to $1,500 per offense and/or imprisonment. A sales tax license may be suspended or revoked for failing to file tax reports or make payments. EXAMPLE SALES TAX LICENSE 6 BUSINESS TAXES IN PENNSYLVANIA Business Use Tax If your business purchases items subject to sales tax for which the seller does not charge and collect sales tax on the invoice or receipt, your business is responsible for remitting the tax to the Department of Revenue. This is called use tax. Use tax exposure occurs most often when a business buys taxable goods online, over the phone, or by mail, and the vendor does not charge Pennsylvania sales tax. This is also true for purchases a business makes while out of state where no sales tax is charged. The items become taxable upon delivery into Pennsylvania. Many businesses believe they save money by making “taxfree” purchases from out-of-state vendors, unaware that these transactions are often assessed upon audit by the department. Since assessments include interest and penalty on top of tax, businesses actually increase operational costs by not voluntarily addressing use tax obligations. The department’s audit experience shows that most businesses owe use tax but many do not pay use tax. The use tax rate is the same as the sales tax rate: 6% state tax, plus an additional 1% local tax for items purchased in delivered to or used in Allegheny County and 2% local tax for Philadelphia. Why is Use Tax Important? Uniform collection and enforcement of use tax provides fairness. Pennsylvania businesses - those who employ our residents, pay state and local taxes and support our communities - are put at a 6% disadvantage against out of state businesses when sales or use tax is not paid on taxable items and services. As online shopping becomes more popular among Pennsylvania businesses, use tax compliance helps to level the playing field among e-commerce retailers and Pennsylvania’s brick and mortar stores. Use tax is an important source of revenue for the Pennsylvania General Fund. Every dollar collected is a dollar available for government and public services. From an enforcement standpoint, when the Department of Revenue receives information on purchases where use tax is owed but was not paid, it will assess the purchaser for not only the tax but also penalty and interest for late payment. 7 Starting a Business in Pennsylvania Is There a Credit for Tax Paid on an Item in Another State? Yes. Pennsylvania grants a credit for sales tax paid to another state, provided the tax is legally due and paid, and that state offers reciprocal credit to PA. For example, if a PA business purchases and takes delivery of a taxable item in another state and pays a 5% sales tax there, the purchaser is responsible for reporting and remitting the 1% difference (use tax) due to PA upon the use of the property in PA. Credit against use tax is not granted for valueadded taxes or sales taxes paid to foreign countries. Also, taxes paid to the federal government, such as customs duties, cannot be claimed as a credit against use tax. How do I Pay Use Tax? Any business that incurs Business Use tax liabilities on a regular basis is encouraged to register for a sales/use tax account number by completing the PA Online Business Tax Registration. If you are already registered for sales tax, then you can file any use tax due with your sales tax return. If the sales tax return is filed timely, then the use tax is considered timely no matter the filing frequency of your business. If you are not required to be registered for sales tax and you have a use tax liability that needs to be paid, you may still file the use tax return and pay electronically by selecting “File a Use Tax Return” on the Returns panel. This return is due along with the payment of tax on or before the 20th day of the month after the month in which the purchase was made. What if Use Tax is not Paid? The department identifies businesses that owe use tax through routine audits, self-assessment programs, complaints, investigations, and lists of out-of-state purchases from vendors and other states. The department can also identify businesses that report minimal amounts of use tax. Underreporting of use tax can trigger an audit by the department. The Department of Revenue may issue an assessment for a use tax liability, on which both penalty and interest charges may be imposed. These additional charges can exceed 30% of the tax amount. Pennsylvania Exemption Certificate Purchaser Information Some businesses may purchase an item with the intent to use it in a manner that has been deemed exempt from one of the following taxes: • State and Local Sales/ Use Tax • State 6% and Local 1% Hotel Occupancy Tax • Public Transportation Assistance Taxes (PTA) and Fees • Vehicle Rental Tax (VRT) • Additional Local, City, County Hotel Tax Depending on how you use the item or the type of business you conduct, you may not have to pay these taxes when making a purchase. In order to claim a tax exemption, you must complete the REV1220, Pennsylvania Exemption Certificate and give the completed form to the seller. A properly completed exemption certificate that provides a valid reason for exemption and is accepted in good faith will relieve the seller from the duty to collect tax. The seller has the right to deny the certificate at any time. In these situations, the purchaser would need to pay the sales tax and petition the Board of Appeals for a refund. Exemption Reasons Businesses can use the REV-1220 to claim an exemption on certain property and services for the following reasons (See REV-1220 for more details): • The property or service is being directly and predominantly used in manufacturing, mining, dairying, processing, farming, and/or shipbuilding. • The purchaser is a government entity, instrumentality, or political subdivision; municipal authority; cooperative Agricultural Association; electric cooperative or credit union. • The property or service will be resold or rented in the ordinary course of business. Business owners who buy an item with the intention of resale at a later time do not need to pay sales tax. However, they will collect and remit the sales tax from the ultimate consumer. In most cases, these businesses should have already obtained a Sales Tax License Number when they registered with the department. For more information on wholesalers, please visit our website at www.revenue.pa.gov. • The purchaser is a religious organization, volunteer fireman’s organization, non-profit educational institution, charitable organization, or school district. Institutions of purely public charity obtain a sales tax exemption number (75 or 76 number) by completing the REV-72, Sales Tax Exemption Application. • The purchaser is a direct pay permit holder, individual holding a diplomatic identification card, or tourist promotion agency. These entities do not receive account numbers. Direct pay permit holders can obtain their numbers from the Revenue website. Individuals with a diplomatic ID card can furnish their card as proof of eligibility for the exemption. Tourist promotion agencies must contact the department to receive a letter stating they are exempt. They will provide this letter to the seller when purchasing promotional materials for distribution to the public. • The property or service will be used directly and predominately by purchaser performing a public utility service. • The purchaser is located in Keystone Opportunity Zone or Expanded Zone (KOZ/KOEZ) and has been approved under the KOZ regulations. These entities should include their KOZ number which begins with 72, on Line 2. NOTE: Applications for a KOZ/KOEZ status are made through the Department of Community and Economic Development (DCED). • The purchaser is providing goods and services under a construction contract with an exempt entity: a charitable organization, government entity, or a firm in designated KOZ. NOTE: The REV-1220 cannot be used to claim an exemption on the registration of a vehicle. To claim an exemption from tax for a motor vehicle, trailer, semi-trailer, or tractor with the PA Department of Transportation, Bureau of Motor Vehicles and Licensing, use: • Form MV-1, Application for Certificate of Title for “first time” registrations. • Form MV-4ST, Vehicle Sales and Use Tax Return/Application for Registration for all other registrations. 8 BUSINESS TAXES IN PENNSYLVANIA Seller Information If you are the seller and your customer provides you with a Pennsylvania Exemption Certificate, you are responsible for ensuring that the form is properly completed. An incomplete certificate may subject the seller to the tax. You have the right to deny the certificate at any time. In these situations, the purchaser would need to pay the sales tax and petition the Board of Appeals for a refund. As the seller, you must be in possession of the certificate within 60 days of the date of sale/lease. It is best practice to collect the certificate at time of purchase. Although the REV-1220 does not expire, the seller is only required to retain an exemption certificate for four years from the date of the exempt sale. However, the seller may periodically request another certificate. Please review the exemption reasons listed under “Purchaser Information” and type of property or service to ensure it is consistent with the type of business or organization that you are selling to. IMPORTANT: Certificates should not be returned to the Department of Revenue. PENNSYLVANIA EXEMPTION CERTIFICATE REV-1220 (TR) 07-23 STATE AND LOCAL SALES AND USE TAX STATE 6% AND LOCAL 1% HOTEL OCCUPANCY TAX This form cannot be used to obtain a Sales Tax License ID, PTA License ID or Exempt Status. PUBLIC TRANSPORTATION ASSISTANCE TAXES AND FEES (PTA) REV-1220 PENNSYLVANIA EXEMPTION CERTIFICATE (Please Print or Type) Read Instructions On Reverse Carefully VEHICLE RENTAL TAX (VRT) ADDITIONAL LOCAL, CITY, COUNTY HOTEL TAX * THIS FORM MAY BE PHOTOCOPIED – VOID UNLESS COMPLETE INFORMATION IS SUPPLIED CHECK ONE: PENNSYLVANIA TAX UNIT EXEMPTION CERTIFICATE (USE FOR ONE TRANSACTION) PENNSYLVANIA TAX BLANKET EXEMPTION CERTIFICATE (USE FOR MULTIPLE TRANSACTIONS) Name of Seller, Vendor or Lessor Street City State ZIP Code NOTE: Do not use this form for claiming an exemption on the registration of a vehicle. To claim an exemption from tax for a motor vehicle, trailer, semi-trailer or tractor with the PA Department of Transportation, Bureau of Motor Vehicles, use one of the following forms: FORM MV-1, Application for Certificate of Title (first-time registrations) FORM MV-4ST, Vehicle Sales and Use Tax Return/Application for Registration (other registrations) Property and services purchased or leased using this certificate are exempt from tax because: (Select the appropriate paragraph from the back of this form, check the corresponding block below and insert information requested). 1. Property or services will be used directly and predominately by purchaser in performing purchaser's operation of: 2. Purchaser is a/an: holding Sales Tax Exemption Number 3. Property will be resold under License ID statement under Number 8 explaining why a number is not required). (If purchaser does not have a PA Sales Tax License ID, include a 4. Property or services will be used directly and predominately by purchaser performing a public utility service. PA Public Utility Commission PUC Number and/or U.S. Department of Transportation MC/MX 5. Exempt wrapping supplies, License ID a statement under Number 8 explaining why a number is not required). Businesses can use the REV-1220 to claim an exemption on certain property and services... (If purchaser does not have a PA Sales Tax License ID, include 6. Canned computer software purchased by a financial institution subject to the Bank and Trust Company Shares Tax (Article VII) or the Mutual Thrift Institutions Tax (Article XV). 7. Canned computer software licenses that are billed to a PA address but used outside of PA. The total number of software licenses purchased for invoice # is . The total number of users accessing and using the software outside PA is . 8. Other (Explain in detail. Additional space on reverse side). I am authorized to execute this certificate and claim this exemption. Misuse of this certificate by seller, lessor, buyer, lessee or their representative is punishable by fine and imprisonment. Name of Purchaser or Lessee Street Signature City EIN Date State ZIP Code 1. ACCEPTANCE AND VALIDITY: For this certificate to be valid, the seller/lessor shall exercise good faith in accepting this certificate, which includes: (1) the certificate shall be completed properly; (2) the certificate shall be in the seller/lessor's possession within 60 days from the date of sale/lease; (3) the certificate does not contain information which is knowingly false; and (4) the property or service is consistent with the exemption to which the customer is entitled. For more information, refer to Exemption Certificates, Title 61 PA Code §32.2. An invalid certificate may subject the seller/lessor to the tax. 2. REPRODUCTION OF FORM: This form may be reproduced but shall contain the same information as appears on this form. 3. RETENTION: The seller or lessor must retain this certificate for at least four years from the date of the exempt sale to which the certificate applies. IMPORTANT: DO NOT RETURN THIS FORM TO THE PA DEPARTMENT OF REVENUE. 4. NONPROFIT EXEMPT ORGANIZATIONS: This form may be used in conjunction with form REV-1715, Exempt Organization Declaration of Sales Tax Exemption, when a purchase of $200 or more is made by an organization which is registered with the PA Department of Revenue as an exempt organization. These organizations are assigned an exemption number, beginning with the two digits 75 (example: 75000000). 9 Starting a Business in Pennsylvania SECTION 2 REPORTING PENNSYLVANIA INCOME REPORTING PENNSYLVANIA INCOME Business Structure There are four principal kinds of business structures: sole proprietorships, partnerships (general or limited), limited liability companies, and corporations (S corporation or C corporation). Regardless of your business structure, every business has an income tax filing requirement in one form or another. How you report this income and how it is taxed can be different depending on the type of business structure you choose. Sole Proprietorship Many small businesses operate as sole proprietorships. This allows the single owner to have sole control and responsibility. How to Report: Sole proprietors report income and expenses using PA Schedule C (Profit or Loss from Business or Profession) for each business. The sole proprietor then reports the profit or loss on a PA-40, PA Income Tax Return and pays tax at the state income tax rate of 3.07%. A taxpayer and spouse who jointly own a sole proprietorship must separately report their portion of the income or loss for the business. If you expect to owe PA personal income tax, you may be required to make estimated tax payments during the year. If your income is expected to be over $8,000 annually and is not subject to withholding by a PA employer, you must file and remit estimated payments by the 15th day of April, June, September, and January. partnership agreement should at least cover the contributions of each partner, the distribution of profits or losses, and the terms for dissolution. Without a written agreement, the profits and losses are presumed to be distributed equally. The department reserves the right to ask for a copy of this agreement at any time. General Partnership A general partnership is formed by an agreement entered into by each partner. This agreement may be informal, but it is advisable to have a written, legal agreement among all parties. Limited Partnership A limited partnership is a partnership having one or more general partners and one or more limited partners. The limited partners have limited exposure to liability and are not involved in the day-to-day management of the limited partnership. Limited Liability Partnership IMPORTANT: PIT Estimates/Payment over $15k must be made electronic or will be subject to an EFT penalty. Individuals can remit estimated, extension, and tax due payments through the department’s myPATH portal. Visit mypath.pa.gov and select Make a Payment to pay via electronic funds transfer. Partnership Partnerships are separate legal entities in which two or more parties are typically involved. Regardless of the type of partnership, it is important to have a partnership agreement. The 11 Starting a Business in Pennsylvania Limited liability partnerships (LLPs) are existing general or limited partnerships that file elections with the with the PA Department of State, Bureau of Corporations and Charitable Organizations, claiming LLP status. Limited liability partnership status provides the general partners with limitations and additional protection on their personal liabilities as general partners. How to Report: When preparing Pennsylvania tax documents, it is best to start with the completed Federal Form 1065, U.S. Return of Partnership Income, and then proceed to the PA schedules, forms, and returns. Partnerships must use PA personal income tax rules for determining income. revenue.pa.gov Partnerships, general and limited, are required to file a PA-20S/PA65, PA S Corporation/Partnership Information Return, to report the adjustments to the federal income, deductions, gains, losses, etc. from their operations for PA personal income tax purposes. The partnership then passes any profits or losses through to their partners. They report this income or loss to their partners by providing each PA resident partner with PA Schedule RK-1, Resident Schedule of Shareholder/Partner/Beneficiary PassThrough Income, Loss and Credits, and each nonresident partner with PA Schedule NRK-1, Nonresident Schedule of Shareholder/ Partner/Beneficiary Pass-Through Income, Loss and Credits. “Non-individuals”, i.e., trusts, S corporations, partnerships, LLCs, etc. should receive both a RK-1 and NRK-1. These schedules show the partners what their share of the income or loss is by PA class of income and any other items required to be reported. Copies of all PA Schedules RK-1 and NRK-1 should be included with the PA-20S/PA-65. Also of note: 1. A partner that is an individual, estate, or trust must include their share of income from a partnership on their personal income tax return or fiduciary income tax return. 2. A partner that is a partnership or an S corporation will include its share of income from a partnership on its PA-20S/PA-65 return. 3. A partner that is a C corporation will include its share of income from a partnership on its corporation tax return. NOTE: A partnership may file a PA-40 NRC, Nonresident Consolidated Income Tax Return, on behalf of its qualifying electing nonresident individual owners. The PA-40 NRC must be filed separately from all other PA tax returns and must include more than one nonresident member electing to be included on the PA-40 NRC. For more information, please review the PA-40 NRC Instructions. Partnerships that elect to be classified as corporations for federal income tax purposes are subject to corporate net income tax. For the current corporate net income tax rate, please visit www.revenue.pa.gov. This income is reported on the Corporate Net Income Tax Report (RCT-101). Limited Liability Company Limited liability companies (LLCs) are popular because, similar to corporations, owners have limited personal liabilities for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs, and foreign entities. There is no maximum number of members. Most states also permit singlemember LLCs and LLCs jointly owned by husband and wife. NOTE: A few types of businesses cannot be LLCs, such as banks, insurance companies, and nonprofit organizations. Single-Members/How to Report: The individual owner of a single member LLC that receives net profit income reports its income and expenses using PA Schedule C (Profit or Loss from Business or Profession). The individual owner of a single-member LLC that owns and operates a rental property reports its income and expenses using PA Schedule E (Rents and Royalty Income (Loss). An entity owner of a single member LLC reports its income and expenses on the appropriate Pennsylvania tax return (PA-20s/PA-65 Information Return or RCT-101). Multi-Members/How to Report: Multi-member LLCs classified as partnerships or S corporations for federal income tax purposes are required to file the PA-20S/PA-65, PA S Corporation/ Partnership Information Return, and provide each PA resident partner with a PA Schedule RK-1 and each nonresident partner with a PA Schedule NRK-1. “Non-individuals”, i.e., trusts, S corporations, partnerships, LLCs, etc. should receive both a RK-1 and NRK-1. Multi-member LLCs that elect to be classified as C corporations for federal income tax purposes are subject to corporate net income tax reported on the Corporate Net Income Tax Report (RCT-101). continued on next page 12 REPORTING PENNSYLVANIA INCOME Business Structure cont. Corporation A corporation is the most complex form of business organization primarily due to the paperwork required to establish a corporation. Business activities are restricted to those listed in the corporate charter. However, most corporations define business activities in very broad terms within the charter. There are two types of corporations in Pennsylvania: S corporations and C corporations. The letters S and C represent subchapters in the Internal Revenue Code and relate to the different types of taxation. S corporations must use PA personal income tax rules for determining income. C corporations follow federal income tax rules for determining income with some adjustments. Pennsylvania S Corporation An S corporation is a closely held corporation which has elected, with the consent of all shareholders, a taxation status which permits shareholders to pay taxes on the individual level and at the individual tax rates, similar to a partnership with “passthrough taxation” rather than at the corporate level. Shareholders of PA S corporations include their shares of income, loss,or credit on PA personal income tax returns and pay tax at the personal income tax rate of 3.07%. S corporation status is limited to corporations that have a limited number of shareholders. Unless the shareholders of a PA S corporation are members of the same family, the maximum number of shareholders an S corporation may have is 100. For tax periods beginning after Dec. 31, 2005, entities considered to be federal S corporations are automatically considered to be PA S corporations (IRC 1361-1379). A federal S corporation may elect not to be taxed as a PA S corporation by filing the REV-976, Election not to be Taxed as a PA S corporation, on or before the due date or extended due date of the PA Corporate Net Income Tax Report for the first year in which the election is to take effect. Once this election is made, it cannot be revoked for five years. 13 Starting a Business in Pennsylvania Pennsylvania S Corporation Status Revocations As stated above, the election to not be taxed as a PA S corporation may not be revoked for five years from the date it went into effect. A revocation received within this five year period will be effective for the first tax period for which the taxpayer is eligible to revoke the election. To revoke the election, the corporation must send a letter signed by the shareholders holding more than one-half of the shares of stock of the corporation on the day on which the revocation is made. This letter must contain the name of the corporation, the federal employer identification number (FEIN), the Pennsylvania Department of State Entity Number, and the effective date of the revocation. If no effective date is provided, the revocation will be effective for the first tax period for which the revocation was timely submitted. In the case of a corporation with qualified subchapter S subsidiaries, the letter must include the names and the federal employer identification numbers (FEIN)s of all qualified subchapter S subsidiaries doing business in PA. Fax the letter to: 717-787-3708 Email the letter to: [email protected] The deadline for revocation of an election not to be taxed as a PA S corporation is the 15th day of the third month of the year in which the revocation is to be in effect. A revocation submitted after the due date will be in effect for the next tax period. Qualified Subchapter S subsidiaries Since 1997, Pennsylvania has recognized qualified subchapter S subsidiaries when corporations are recognized as such by the federal government. For income tax purposes, all income is considered as earned by the parent corporation and passed through from the parent corporation to the shareholders. If the only Pennsylvania activity of the parent corporation is the investment in the qualified subchapter S subsidiary, the parent corporation does not need to register to do business in Pennsylvania to make this election. C Corporation All corporations are C corporations unless they opt to take advantage of a provision in both federal and state tax laws to be treated as S corporations. A corporation pays taxes on profits and shareholders pay taxes when profits are received as dividends. However, shareholders cannot deduct any losses posted by a corporation. How to Report: A PA S corporation is not subject to corporate net income tax; rather, the income is passed through to the shareholders to claim on their personal income tax returns. The income passed through to a shareholder from a PA S corporation is calculated based on personal income tax law and not corporation tax law. The determination of income for personal income tax purposes differs from the income determined for corporate net income purposes. For example, there are no provisions to allow a net operating loss carry-forward in the calculation of income for personal income tax purposes. PA S corporations are required to file a PA-20S/PA-65, S Corporation/Partnership Information Return, provide each PA resident shareholder with a PA Schedule RK-1 and provide each nonresident shareholder with a PA Schedule NRK-1. “Non-individuals”, i.e., trusts, S corporations, partnerships, LLCs, etc. should receive both a RK-1 and NRK-1. These schedules show the shareholder’s portion of the income or loss by PA class of income and determine which other items are required to be reported. Copies of all PA Schedules RK-1s and NRK-1s should be included with the PA-20S/PA-65. NOTE: If an S corporation has taxable builtin gains, it will be subject to corporate net income tax. In such a case, the S corporation must file an RCT-101, to report and pay corporate net income tax on the built-in gains. For years beginning after December 31, 2012, income is apportioned to Pennsylvania based solely on the sales factor. Corporations required to apportion income must use 100% of sales when calculating PA income tax liabilities or PA net operating losses. Pennsylvania’s net operating loss (NOL) carry-forward provisions permit C corporations to offset current-year income with net operating losses carried forward from a prior year. This is subject to a 20 year carry-forward limitation, as well as, a limitation to the total amount of taxable income that can be offset. Please reference the chart below for NOL Cap. Net Operating Losses Cap Taxable Year Net Operating Loss Cap 2017 30% of PA taxable income 2018 35% of PA taxable income 2019+ 40% of PA taxable income How to Report: All corporations must file an RCT-101, PA Corporate Tax Report and include copies of appropriate federal forms (1120 or 1120-REIT) and supporting schedules. 14 REPORTING PENNSYLVANIA INCOME Withholding Requirements Corporate Net Income Tax Withholding: Partnerships with one or more partners that are C corporations subject to corporate net income tax are required to make withholding payments on behalf of nonfiling corporate partners. Calculate the withholding for each non-filing corporate partner on the PA Schedule CP, Corporate Partner CNI Withholding. You then list each non-filing corporate partner on the PA-65 Corp, Directory of Corporate Partners, and send in the withholding with this form. Personal Income Tax Withholding for Nonresidents: Partnerships and PA S corporations with one or more nonresident partner(s) and shareholder(s) (owners) that are individuals, estates, and trusts are required to make withholding payments on behalf of nonresident owners. Estimated and extension payments made are reported on PA Schedule NW, Nonresident Withholding Payments for PA S corporations and Partnerships. If additional nonresident withholding is due, you should send the payment with the PA-20S/PA-65, PA S Corporation/Partnership Information Return, the PA-40 NRC, Nonresident Consolidated Income Tax Return, or both, depending upon your situation. See instructions for both forms for details. Expenses & Deductions You may deduct ordinary and necessary business expenses from your business income. An ordinary expense is one that is common and accepted in your field of business, trade, or profession. A necessary expense is one that is helpful and appropriate for your business, trade, or profession. An expense does not have to be indispensable to be necessary. Following are examples of deductible business expenses: • Amortization of business start-up costs • Depreciation • Cost of goods sold • Vehicle expenses • Cost of using your home for business Many other expenses may be deductible for income tax purposes. Visit www.revenue.pa.gov for more information. Business Start-Up Costs Business start-up costs are expenses your business incurs before beginning business operations. They may include advertising, travel, surveys, and training. You must capitalize these initial costs as an asset of the business. Capitalized expenses are combined expenses and you gradually deduct the total over a number of months or years. The gradual expense of these costs is amortization expense. However, you may not deduct start-up costs if business operations never begin. 15 Starting a Business in Pennsylvania For PA personal income tax purposes, you may directly expense (deduct) up to $5,000 of business start-up costs in the first year in which the business begins operations. You must amortize all start-up costs greater than $5,000 over 180 months. If total start-up costs exceed $50,000, you must reduce the amount of the direct expense by a dollar-for-dollar reduction of the direct expense amount for each dollar over $50,000. Sole Proprietorships/ How to Report: Report business startup costs using PA Schedule C (Profit or Loss from Business or Profession). Record only the direct expense amount of start-up costs on Line 36 and report the amortization of any start-up costs on Line 7. Partnerships and PA S corporations/ How to Report: Report business start-up costs on the federal Form 1065 or Form 1120-S. Report only the directly expensed amount on Form 1065, Line 20 or Form 1120-S, Line 19. Report the amortization of any start-up costs on Form 1065, Line 16a or Form 1120-S, Line 14. If you are amortizing start-up costs, you will also need to complete federal Form 4562, Depreciation and Amortization. C corporations: Report business start-up costs on the federal Form 1120. Report only the directly expensed amount on Form 1065, Line 26 and report any amortized costs on Line 20. If you are amortizing start-up costs, you will also need to complete federal Form 4562, Depreciation and Amortization. revenue.pa.gov NOTE: Usually costs for a particular asset (such as machinery or office equipment) are recovered through depreciation. Other start-up costs can be recovered through amortization, when the costs are deducted in equal amounts over a period of 180 months or more. Business start-up costs that are not amortized generally cannot be recovered until assets are sold or the business is discontinued. code of 1986. If the basis of any asset differs from the federal basis, you must use straight-line depreciation for PA personal income tax purposes. For tax years beginning prior to January 1, 2023, businesses may also elect to expense up to $25,000 of the cost of certain assets as an IRC Section 179 expense. There is a dollar-for-dollar reduction of the PA Section 179 expense for each dollar of investment in new assets that exceeds $200,000. For tax years beginning January 1, 2023 and after, businesses may elect to expense up to $1,000,000 (indexed for inflation) of the cost of certain assets as an IRC Section 179 expense. There is dollar-for-dollar reduction of the PA Section 179 expense for each dollar of investment in new assets that exceeds $2,500,000 (indexed for inflation). Depreciation If property acquired for your business has a useful life exceeding one year, you generally cannot deduct the entire cost as a business expense in the year you acquire the property. Instead, you must spread the deduction out over more than one tax year. This method of deducting the cost of business property is depreciation. The key difference between amortization and depreciation is that you use amortization for intangible assets, while you use depreciation for tangible assets. Examples of depreciable property include the following: • Office furniture • Buildings and leasehold improvements • Machinery and equipment You may deduct a limited amount of the cost of certain depreciable property in the year you place the property in service (and each year thereafter throughout its useful life) as depreciation expense. You usually maintain and keep track of depreciable assets and the yearly depreciation expense via a depreciation schedule. To set up a simple depreciation schedule, record the date of purchase, the amount paid for an item and its useful life, then decide upon a depreciation method. Straight-line depreciation is the simplest method, where you deduct the cost of each item equally over time. For example, you can deduct the cost of an $1,800 computer with a useful life of five years at $30 a month ($1,800 divided by 60 months). You must track the depreciation expense claimed each taxable year until you fully depreciate the item. You record the amount deducted each year as a depreciation expense as accumulated depreciation. For PA personal income tax purposes, the depreciation method and useful life may follow the federal rules for determining the depreciation expense as long as the basis of the asset is the same for federal and Pennsylvania purposes and the method and useful life for the asset for federal purposes follows the Internal Revenue NOTE: PA income tax rules do not allow you to immediately expense a percentage of your assets (called “bonus depreciation”) like federal does. Businesses may elect to expense certain assets as an IRC Section 179 expense. Please review current guidance on the department’s website for guidance. Sole Proprietorships/ How to Report: Use the appropriate lines on the PA Schedule C (Profit or Loss from Business or Profession) to report depreciation expense on your assets and any Section 179 expense you elect to take. Partnerships and PA S corporations/ How to Report: You report depreciation expense on either the federal Form 1065, Line 16a or Form 1120-S, Line 14. You will also need to complete federal Form 4562, Depreciation and Amortization. Remembering that PA personal income tax rules do not allow bonus depreciation and do not follow federal IRC Section 179 expense limits for years prior to January 1, 2023, you may need to make an adjustment to your federal income. You make this adjustment on the PA Schedule M for the PA-20S/PA-65. See the Instructions for Schedule M for where to include your adjustment(s) C corporations/ How to Report: You report depreciation expense on the federal Form 1120. You will also need to complete federal Form 4562, Depreciation and Amortization. Pennsylvania corporate net income tax rules also do not allow federal bonus depreciation. You would adjust your federal income using Schedule C-8, Adjustment for Bonus Depreciation, or Schedule C-9, Adjustment for Deduction for Property, which is Fully Depreciated, Sold, or Otherwise Disposed. continued on next page 16 REPORTING PENNSYLVANIA INCOME Expenses & Deductions cont. Costs of Goods Sold Vehicle Expenses Generally, when you engage in a trade or business in which production, purchase, or sales of merchandise is an incomeproducing factor, you must value inventory at the beginning and end of each tax year to determine your cost of goods sold. In determining inventory value, use the cost, lower of cost or market value, or other method allowable under generally accepted accounting principles and practices. If you change your method of valuing inventory, restate the value at the beginning of the year based on the changed method and include an explanation. If you use a vehicle for both business and personal reasons, generally the business portion is deductible. Keeping good records is key. You must determine what percent of the vehicle you use for business purposes and what percent you use for personal purposes. To do this, track the entire use of the vehicle by keeping a usage log in order to allocate the usage between the two. Some of your expenses may be included in figuring the cost of goods sold. You deduct the cost of goods sold from your gross receipts to determine the amount of gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. The following are types of expenses used to calculate the cost of goods sold: • The cost of products or raw materials, including freight • Storage • Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products • Factory overhead Under the uniform capitalization rules, you must capitalize direct costs and part of the indirect costs for certain production or resale activities. Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Sole Proprietorships/ How to Report: Report costs of goods sold using PA Schedule C (Profit or Loss from Business or Profession), on Line 2 and on Schedule C-1. Partnerships and PA S corporations/ How to Report: Cost of goods sold is calculated on federal Form 1125-A and carried to page 1 of the Federal tax return. For partnerships, it goes to Form 1065, Line 2 and for PA S corporations, it goes to Form 1120-S, Line 2. C corporations/ How to Report: Calculate cost of goods sold on Federal Form 1125-A and carry it to page 1 of the federal Form 1120, Line 2. 17 Starting a Business in Pennsylvania Example: A sole proprietor of a flower shop drives his van 20,000 miles during the year: 16,000 miles for delivering flowers to customers and 4,000 miles for personal use. The sole proprietor may claim 80% (16,000 divided by 20,000) of the costs of operating the van as a business expense. A business may use either the actual or the standard mileage rate method for determining vehicle expenses. The method a business uses depends on a few different factors such as the amount of time and attention to detail the business wishes to extend to keeping records for the expenses, whether the vehicle is leased or owned, if the vehicle being used is a small or large vehicle, or if the vehicle is an older, newer, or inexpensive model. A business that uses the standard mileage rate method simply needs to keep track of the business and personal mileage use of the vehicle. A business that uses the actual method must keep track of all the vehicle’s expenses as noted below and the business and personal use mileage. Typically, a business that chooses the standard mileage rate method can switch back and forth between methods but only if the business used the standard mileage rate in the first year of business use. However, if the business used the standard mileage rate in the first year for a leased vehicle, it must use that for the entire usage period for that vehicle. A business that uses the actual method in the first year must use the actual method for the life of the vehicle. With a smaller or inexpensive vehicle, it is sometimes better to use the mileage rate method than the actual expense method. A business may also benefit from using the mileage rate method versus the actual expense method with older vehicles. A business with larger, more expensive or newer vehicles may benefit by using the actual expense method over the standard mileage rate method. To determine which method is best for a vehicle, track both expenses for the first year of business use for the vehicle and decide which is best. The decision on what method to choose is critical in the first year of business use as that method can lock a business into the same method for the life of the vehicle. Actual Expense Method If the business chooses the actual expense method to calculate its vehicle expenses, the following expenses would be allowable up to the amount of the business use percentage for the vehicle: • Depreciation • Lease fees • Rental fees • Towing charges • License fees • Auto club dues • Gas and oil • Car repair tools • Tires • Insurance • Car washes • Registration fees • Repairs and maintenance • Business trip parking fees You should keep dated receipts for each transaction. The department will consider credit card statements and/or other similar documentation in some situations. You must keep the business purpose and description of the vehicle for all vehicle expenses. Standard Mileage Method If you choose to deduct vehicle expenses using the standard mileage method rather than deducting actual expenses, you must use the standard mileage rate announced by the IRS to claim deductible costs of operating the car, van, or truck for business purposes. NOTE: If you choose the standard mileage method to calculate vehicle expenses, you may not deduct actual expenses except for business-related parking fees and tolls. In order to track total mileage, the business should maintain a detailed travel log to verify the mileage claimed. The detailed mileage log must contain the following information: • Date traveled • Beginning destination • Ending destination • Total miles per trip • Purpose of trip • Business relationship continued on next page EXAMPLE MILEAGE LOG 18 REPORTING PENNSYLVANIA INCOME Expenses & Deductions cont. Business miles are the number of miles actually driven for business, such as visiting a customer or meeting a client. Remember that any miles driven to the bank, office supply store, or computer store to meet with an accountant or to meet with a lawyer on business matters also counts as part of the business use mileage. Some travel is not business-related: • Driving from home to work and back is commuting. It is not deductible on either your business or individual income tax return. • If you make a stop at a store on the way home from a business trip, the remaining miles from the store to home are personal mileage, so they can’t be included. You cannot use the standard mileage rate if: • You used five or more vehicles at the same time (as in fleet operations). • You used the actual expense method for calculating vehicle expenses in the first year you used the vehicle for business, including situations where a Section 179 deduction was claimed. • You claimed the special depreciation allowance on the vehicle. The five or more vehicles restriction applies to vehicles used at the same time. For example, a business owns three vans and two cars. The three vans can be on the road together at the same time, but only one person ever drives the cars, so only one will ever be in use at any time. This scenario won’t break the four car maximum. Vehicle Owned by Employee An employee (or a shareholder employee) who uses a personal vehicle for business can submit a request for reimbursement to the corporation, based on documented business miles. The corporation can then reimburse the employee based on the standard mileage rate for business. In this case, the corporation gets a deduction for vehicle expenses paid, and the reimbursement is not reportable as taxable income to the employee. If the company paid the auto loan, insurance, gas, repairs, etc. to the owners, these payments are not valid business expenses. They will be either an auto allowance or distribution to shareholder-employees. Vehicle Owned by the Corporation Corporations cannot use the standard mileage rate method. They must determine the deduction for any vehicles owned based on actual operating expenses. The corporation can deduct auto loan, interest, insurance, repair, gas, etc. However, the business-use percentage of the vehicle limits the deductions. The corporation 19 Starting a Business in Pennsylvania can treat vehicles used by employees as being u
Extracted from PDF file 2023-pennsylvania-form-rev-588.pdf, last modified December 2020

More about the Pennsylvania Form REV-588 Other TY 2023

We last updated the Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes in January 2024, so this is the latest version of Form REV-588, fully updated for tax year 2023. You can download or print current or past-year PDFs of Form REV-588 directly from TaxFormFinder. You can print other Pennsylvania tax forms here.


eFile your Pennsylvania tax return now

eFiling is easier, faster, and safer than filling out paper tax forms. File your Pennsylvania and Federal tax returns online with TurboTax in minutes. FREE for simple returns, with discounts available for TaxFormFinder users!

File Now with TurboTax

Other Pennsylvania Other Forms:

TaxFormFinder has an additional 174 Pennsylvania income tax forms that you may need, plus all federal income tax forms.

Form Code Form Name
Form PA-1000 Property Tax or Rent Rebate Claim
Form PA-1000 Booklet Property Tax or Rent Rebate Program Instruction Booklet
Form PA-1000 RC PA Rent Certificate - PA Rent Certificate and Rental Occupancy Affidavit (PA Property Tax/Rent Rebate)
Form REV-1176 E-TIDES Administrative Access Change Request Form
Form REV-181 Application for a PA Tax Clearance Certificate

Download all PA tax forms View all 175 Pennsylvania Income Tax Forms


Form Sources:

Pennsylvania usually releases forms for the current tax year between January and April. We last updated Pennsylvania Form REV-588 from the Department of Revenue in January 2024.

Show Sources >

Historical Past-Year Versions of Pennsylvania Form REV-588

We have a total of three past-year versions of Form REV-588 in the TaxFormFinder archives, including for the previous tax year. Download past year versions of this tax form as PDFs here:


2023 Form REV-588

Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes (REV-588)

2022 Form REV-588

Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes (REV-588)

2021 Form REV-588

Starting a Business in Pennsylvania - A Guide to Pennsylvania Taxes (REV-588)


TaxFormFinder Disclaimer:

While we do our best to keep our list of Pennsylvania Income Tax Forms up to date and complete, we cannot be held liable for errors or omissions. Is the form on this page out-of-date or not working? Please let us know and we will fix it ASAP.

** This Document Provided By TaxFormFinder.org **
Source: http://www.taxformfinder.org/pennsylvania/form-rev-588