End-to-end tax workflow for Pennsylvania resident sole proprietors and single-member LLCs: computes PA net profits under PA-specific rules (no bonus depreciation, §179 capped at $25,000, no SE deductions), prepares PA-40 at the flat 3.07% rate, and handles Act 32 local earned income tax quarterly estimates and annual return with the resident TCD tax officer.
Confirm full-year PA residency (domicile test vs. 183-day statutory residency), identify the correct filing status, and determine whether this is a sole proprietor, SMLLC, or partner. Establish the client's resident municipality and look up the 6-digit PSD code at munstats.pa.gov to identify the correct Tax Collection District (TCD) and tax officer (Berkheimer, Keystone, Jordan, or Capital Tax). Flag Philadelphia and Pittsburgh cases for city-specific routing.
Start from the federal Schedule C and systematically apply PA-specific adjustments to arrive at PA net profits (Class 2 income). The most material adjustments are: add back any federal bonus depreciation (§168(k) — PA does not conform), replace with straight-line MACRS; cap §179 expensing at $25,000 (not the federal $1,220,000+ limit); exclude the 50% SE tax deduction, self-employed health insurance deduction, and SEP/SIMPLE/solo 401(k) contributions (none are deductible for PA). Build the PA depreciation schedule where federal and PA basis diverge.
Compute each of Pennsylvania's eight classes of income independently — compensation (Class 1), net profits (Class 2), interest (Class 3), dividends (Class 4), rental/royalty (Class 5), estate/trust (Class 6), gambling (Class 7), and gain on sale of property (Class 8). Losses in one class cannot offset income in another — this is a hard PA rule. Sum the classes to arrive at PA taxable income, apply the flat 3.07% rate, and check eligibility for the Tax Forgiveness credit (Schedule SP, for eligibility income under ~$6,500 single / higher with dependents). Apply any withholding from W-2 wages and estimated payments made.
Prepare the annual local EIT final return (Form CLGS-32-1 or TCD-equivalent) due April 15 with the resident TCD tax officer. The LEIT base for net profits mirrors PA Schedule C net profits (same PA-specific adjustments). Apply the resident combined rate (municipality + school district — typically 1.0% in most townships, higher in Act 47 cities like Reading ~3.6%, Scranton ~3.4%, Pittsburgh ~3.0%, Harrisburg ~2.0%). Credit any quarterly estimated payments made during the year. Note: LEIT estimated payment deadlines (Apr 30 / Jul 31 / Oct 31 / Jan 31) differ from federal 1040-ES deadlines — reconcile carefully. Key trap: §401(k) deferrals ARE subject to LEIT even though they reduce federal and PA income; §125 cafeteria plan deductions are NOT subject to LEIT.
Compute 2026 quarterly estimated payments for both PA state PIT (PA-40ES) and local EIT. For PA state, estimated payments are due April 15 / June 15 / September 15 / January 15 — there is no prior-year safe harbour analogous to the federal 110% rule; pay 90% of current year tax to avoid underpayment interest at 3% per annum. For local EIT, the quarterly deadlines are April 30 / July 31 / October 31 / January 31 (calendar-quarter based, not the federal pattern). Flag if the client should consider an S-corp election (reasonable compensation W-2 + K-1 distribution) to reduce SE tax exposure for high-profit situations.
Run this workflow in your AI agent
Install the MCP connector once — your agent loads the right skills, works through each phase, and routes to a licensed Pennsylvania accountant for review.