What is a Personal Service Corporation?
A personal service corporation is a business formed by an individual or a group of individuals for the purpose of providing personal services like consulting and accounting.
Here are the requirements to qualify for a personal service corporation:
- The company’s employees must spend 95% of their time providing qualified services.
- The employee-owners must provide over 20% of the services for the corporation.
- Over 10% of the company’s outstanding stock should be owned by the employee-owners.
- The corporation must provide one of the qualified services as its core service.
The most popular qualified services are health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. Financial service firms, however, are excluded from this list and must form an S-Corporation instead.
Tax and Liability of a Personal Service Corporation
Personal service corporations enjoy many of the same legal advantages as a C-Corporation. For example, limited liability protection helps to shield any personal assets of the employee-owners from forfeiture or lawsuits.
Personal service corporations also can claim important tax benefits like a professional corporation, including:
- The ability to leave earnings in the company. Because the personal service corporate tax rate is a flat 21%, it can shield some of its income from the higher tax rates on individual tax returns.
- The ability to claim a wider range of business deductions, such as healthcare, life insurance, disability insurance, and dependent care — all of which can be provided tax-free to employee-owners.
Such professional corporations are best-suited for licensed professionals as these provide better liability protection than partnerships or sole proprietorships.
Why You Need an EIN for Your Personal Service Corporation
Before you can form a personal service corporation, you need a Tax ID from the IRS. Also known as an Employer Identification Number (EIN), this unique ID is what state and federal agencies use to track your tax obligation from tax year to year.
Here are some reasons why you need a tax ID for your personal service corporation.
Open a Bank Account
Like any business, you need a separate bank account for your personal service corporation as well. And for that, the bank will ask for an EIN for your business.
Hire Employees
If you intend to hire employees, pay their salaries, and exempt that expense from your taxable income, you need an employer identification number.
File Taxes
An EIN is like a social security number for your company that the government uses to track your taxes. You need an EIN to file taxes, get tax breaks, etc.
Raise Capital
Having an EIN for your personal service corporation legitimizes your business and makes it easier for it to raise funding from investors and lenders.
Many banks, vendors, and suppliers will request your personal service corporation EIN before doing business with you. Get one quickly with GovDocFiling.
Complexities of Applying for an EIN Directly via the IRS
The standard method for obtaining a Tax ID for your personal service corporation involves a lengthy application process with the IRS, complete with:
Confusing Fields
Complex Legalese
Approval Delays
At GovDocFiling, however, we’ve developed a streamlined, intuitive EIN application that takes only a few minutes to complete. This one-page form includes all of the fields required by the IRS, but every question is written in simple language to minimize confusion.
Why Choose GovDocFiling to Apply for an EIN
Filing for an EIN with the IRS can be a tedious and time-consuming process with low approval rates. GovDocFiling can make it simpler with an intuitive online EIN application.
Here are some of the benefits of getting your personal service corporation EIN via GovDocFiling.
Quick Service
Getting an EIN by sending an application to the IRS via mail can take weeks. With the right documentation, GovDocFiling can help you get your EIN within 24 hours of filing the application.
Affordable Prices
Other companies providing the same-day EIN service can charge as high as $300. GovDocFiling expedites the process and provides same-day delivery at no extra cost to you.
Great Customer Support
GovDocFiling provides 7-day US-based customer support. We respond to emails within 24 hours and provide quick problem resolution for all your queries, challenges, and questions.
High Success Rate
When you file for a tax ID directly with the IRS, a simple mistake can get your application rejected. We avoid that situation by having our experts review your form and all the paperwork.
Let GovDocFiling worry about all the paperwork and dealing with the IRS, while you focus on running your business. We can get you an EIN on the same day.
Personal Service Corporation State Filing and Formation Process
Our one-page EIN application also includes all state-specific questions required to form a personal service corporation within your home state. Completing this simplified form eliminates the need to file separate applications with both the IRS and your Secretary of State.
Here’s how the process works:
If you’re ready to officially form a personal service corporation, complete the one-page application form below.
Benefits of Personal Service Corporations
Our one-page EIN application also includes all state-specific questions required to form a personal service corporation within your home state. Completing this simplified form eliminates the need to file separate applications with both the IRS and your Secretary of State.
Here’s how the process works:
Liability Protection
One of the main reasons why licensed professionals choose this legal entity is because it protects their personal assets in case the company accumulates a lot of debt and liabilities.
Ease of Raising Capital
It is easier to raise capital for a personal service corporation than a Sole Proprietorship or a Partnership, as the structure provides more confidence to potential investors that the firm is legit.
Separate Legal Entity
A personal service corporation is a legal entity separate from its owners. It can raise capital, enter into contracts, sue, be sued, have its own separate bank account, and more.
Tax Breaks
Having a personal service corporation allows you to enjoy many tax benefits and claim tax breaks on several expenditures like employee salaries and benefits provided to them.
A personal service corporation gives the owners better liability protection and tax benefits than a sole proprietorship or a partnership. To get these benefits, however, you will need an EIN.
Drawbacks of Personal Service Corporations
White a personal service corporation offers many benefits, it also has some disadvantages.
Here are the major drawbacks of starting a personal service corporation.
Double Taxation
The corporation is taxed at a flat rate of 21% and each employee-owner pays income taxes on their income based on their respective slabs. This means that they need to pay taxes twice.
Compliance Requirements
It has strict compliance requirements like employees should spend over 95% of their time providing qualified services and the owners must contribute towards providing 20% of the services.
Expensive to Form & Run
Just like any other corporation, personal service corporations are also more expensive to form and run, compared to any other types of business entities like sole proprietorships or LLCs.
Complex Formation Process
Given the strict qualification criteria, the formation process for a qualified personal service corporation is long and complex. It can take several weeks and lots of paperwork to form a PSC.
Weight the benefits against the drawbacks and then decide whether it is the right option for you. GovDocFiling can help make the process easier and quicker for you.
How to Form a Personal Service Corporation
Here is the step-by-step process to form a personal service corporation in the US.
Select a Qualified Service
Choose from one of the qualified personal services that are eligible for forming a personal service corporation. Here are some options:
- Health
- Law
- Engineering
- Architecture
- Consulting
- Accounting
- Actuarial Science
- Performing Arts
You and your business partners must be actively involved in providing such services, so choose wisely.
Find and Reserve a Business Name
Next, you need to select a business name for your personal service corporation. It must be:
- Unique
- Memorable
- Relevant
- Legally-Compliant
You can search the state database to ensure that no other business is using the name and then reserve it with the state.
Appoint a Registered Agent
Every business needs a registered agent to receive legal documents and notices. Choose a registered agent who:
- Resides in the state of business formation
- Has a permanent address in the state
- Is available during business hours on all days
- Is willing to accept legal notices on your behalf
You can choose to be your own registered agent, but hiring one make things easier.
File the Articles of Incorporation
To form your personal service corporation, you need to file the articles of incorporation with the state. It should have details like:
- Company name and address
- Registered agent’s name and contact information
- Purpose of forming the corporation or its principal activity
- Business descriptions and other pertinent information
This will establish your company as a separate legal entity under teh state law.
Get Business Licenses & Permits
Find out the local, state, and federal licenses and permits your business may require and obtain those. Some examples include:
- General business license
- Health & safety permits
- Professional Licenses
- Zoning or sign permits
You will need these to smoothly run your business and stay compliant with laws and regulations.
Get an Employer Identification Number
Every business needs a tax ID number or an EIN as it helps with the following aspects:
- Filing taxes
- Hiring employees
- Opening a bank account
- Raising capital
Quickly get an EIN for your personal service corporation with GovDocFiling’s easy online application.
Open a Business Bank Account
Open a separate bank account for your business to keep your business and personal finances separate. Opening a business bank account would require:
- An employer identification number
- Articles of incorporation
- Business name & address
- Information on owners
A separate business account will also help you keep track of your business expenses, which will be useful for tax reporting purposes.
Market Your Business & Find Clients
Once you form your personal service corporation, you need to market your services and find clients. Here are some marketing tactics that will help:
- SEO-friendly business website
- Social media marketing
- Word of mouth marketing
- Advertising and PPC marketing
Use your existing network and contacts to spread the word about your new business and find clients.
Forming a personal service corporation need not be hard, especially if you use the services of a company like GovDocFiling.
What Our Customers Say About Us
GovDocFiling’s user interface provided an easy step-by-step process to obtain tax IDs for my business. It looks like they are partnering with other service companies and are becoming a one-stop shop for business support services, which I will look further into, so that I can focus on actually running my business.
– Ray K
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– Rachel Rife
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– Devon Young
Frequently Asked Questions
It’s a corporation that is owned by an individual or a group of individuals with the purpose of providing personal services like accounting or consulting. Typically, the owners are licensed professionals who want to get the benefits of using this business structure over a sole proprietorship or a partnership.
For forming personal service corporations, you need to meet the test requirements of the IRS during the testing period.
The scope of personal services that qualify for a personal service corporation status is vast, according to the internal revenue service (IRS) classification. Popular services provided by a PSC are:
- Health
- Law
- Engineering
- Architecture
- Consulting
- Accounting
- Actuarial Science
- Performing Arts
Financial services, however, do not qualify for personal service corporations. So if you want to run a financial services firm, you need to form an S-Corporation.
Just like individuals have social security numbers, businesses have employer identification numbers or tax ID numbers with which the government can identify them and track their tax activities.
An EIN helps you:
- File taxes and enjoy tax breaks on certain tax-deductible business expenses
- Hire employees and pay their salaries and benefits
- Open a bank account for your business
- Legitimize your firm and easily raise funding to cover expansion costs
Having an EIN is crucial to run a successful business and GovDocFiling makes obtaining an EIN seem like a breeze.
Here are some of the key benefits of forming a personal service corporation:
- It protects the owners’ personal assets from the business’s debts and liabilities.
- You can get tax breaks on certain types of business expenses, thus reducing your taxable income, as per tax regulations.
- Forming a Corporation legitimizes your business and makes it easier to raise capital.
- A Corporation is a separate legal corporate entity that is separate from its owners and can operate in perpetuity.
If you are a licensed professional who wants to provide personal services, then personal service corporations are a great option for you. Remember, that though there are many benefits, a PSC’s tax liability is also high.
Obtaining an EIN from the IRS (internal revenue service) requires you to fill out a complex form and even a single mistake can get your application rejected. And even if you do get approval, it can take weeks to get your EIN.
GovDocFiling offers an easy way out by providing you with a simple, online application and same-day EIN delivery.
Ready to Get an EIN for Your Personal Service Corporation?
GovDocFiling expedites the process of getting an EIN and takes care of all the legal hassles and paperwork. All you have to do is fill out a simple online application and provide the required documents.