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)
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