What is a Pass Through Entity?
Jul 14, 2020
Most businesses do not have to pay income taxes on the corporate level. Instead the profits from their business flows through (or passes through) to the owners of the company where it is eventually taxed.
Types of Pass Through Businesses
- Sole Proprietor
- Partnership
- Single Member LLC
- S Corporation
An example of a non pass through entity would be a C Corporation. In a C Corporation the company pays taxes on the profit of the business at the corporate level.
Basic Concept: If you have a pass through entity you have income and expenses related to the business that are reported on the business tax return (Schedule C, 1065, 1120S). The profit from those businesses are then reported on a personal return where the taxes are paid.
Here is the tax treatment for the various entity types:
Sole Proprietorship or Single Member LLC
File business information on a Schedule C on a personal tax return (Form 1040).
Partnership or Multi Member LLC
File business information on Form 1065 and then each partner will receive a K1 with their share of activity which will be used to report and pay taxes on the business activity on a personal tax return (Form 1040).
S Corporation
File business information on Form 1120S and then each owner will receive a K1 with their share of activity which will be used to report and pay taxes on the business activity on a personal tax return (Form 1040).
C Corporation (Not Pass Through Entity)
File business information on Form 1120 and then pay taxes at the corporate level.
Now you know what a pass-through entity is. Majority of small business owners in the US operate using a pass-through entity.
The Time Is NOW To Start Paying Less In Taxes. Join TaxElm and start eliminating taxes and growing your wealth!
What you'll get:
- Tax Savings Blueprint and Training: We’ll provide you with a customized tax plan that is tailored to meet your specific needs and goals. Along with that, you have access to our library of training modules, implementation guides, supporting documents, and more.
- Unlimited Access to Tax Experts: Got a specific question about a tax strategy? You’ll have access to our team of tax experts to get the accounting and tax answers you need.
- Annual 1-on-1 Live Consultation: Once a year you get a live meeting with a tax expert to discuss anything tax savings you would like. This is your time to get your questions answered live 1-on-1.
- Annual Bookkeeping Analysis: Annually you will submit your financials to our team of accountants and we will put together a high level business financials overview report custom to your business.
- Monthly Group Webinar and Training: Every month, we host a live, virtual training session on a key tax topic. Join us live and bring your questions or view the recording on your own schedule.
- Partner Directory and Discounts: You get exclusive, members-only rates and access to our expert referral network for accounting, bookkeeping, tax preparation, payroll, financial planning, legal, retirement planning, tax resolution, and more!
It is like having a tax strategist walking with you along this entrepreneurial journey!
Stay connected with news and updates!
Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.
We hate SPAM. We will never sell your information, for any reason.
