What is a Pass Through Entity?

Posted on July 02, 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 Our Tax Minimization Program (w/ Stress Free Bookkeeping Training)!

What you’ll get:

  • Library of Tax Strategies, Implementation Guides, Videos, Downloads, etc.
  • Stress Free Bookkeeping Training Program
  • Ask A Pro – Unlimited email access to our team, it is like having an accountant in your back pocket!
  • Monthly Group Trainings
  • Private Facebook Group
  • Partner Directory

Related Posts:

Business Retirement Plan Q&A Session

Business Retirement Plan Q&A Session

We held a live Q&A session for business retirement plans with our expert, Matt Ruttenberg. You can find the recording below.  If you would like to get connected directly with Matt, please fill out the form below! Here are some previous Podcast Episodes and Blog...

How Are My Assets Taxed When I Die?

How Are My Assets Taxed When I Die?

Lets be honest, I dislike talking about death as much as you but we need to be realistic and understand some day it will come. Okay, enough of the sadness now lets talk about what you need to know so that you can properly plan for your family. If you have not checked...

You may also like:

Business Retirement Plan Q&A Session

Business Retirement Plan Q&A Session

We held a live Q&A session for business retirement plans with our expert, Matt Ruttenberg. You can find the recording below.  If you would like to get connected directly with Matt, please fill out the form below! Here are some previous Podcast Episodes and Blog...

How Are My Assets Taxed When I Die?

How Are My Assets Taxed When I Die?

Lets be honest, I dislike talking about death as much as you but we need to be realistic and understand some day it will come. Okay, enough of the sadness now lets talk about what you need to know so that you can properly plan for your family. If you have not checked...

The result?
You’ll love how easy managing your business finances becomes!

Download your FREE copy of this eBook to see if you’re overpaying uncle Sam by 5 or 6 figures annually