Tax
Passthrough Entity
A business entity that doesn't pay federal income tax; income passes through to the owners.
Partnerships, S-corps, and most LLCs are passthrough entities. The entity files an informational return (1065 or 1120-S), but the actual tax is owed by the owners on their personal returns.
C-corps are not passthrough: they pay tax at the entity level, and shareholders pay again on dividends (the 'double taxation' issue).
Common pitfalls
- Forgetting to make state-level entity tax elections (PTET) that work around the SALT cap
- Confusing legal form (LLC) with tax form (passthrough or C-corp election)
Related service
See tax and CPA servicesHave a Passthrough Entity situation in your business?
Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.