What does pass through taxation mean?

itsme: What does pass through taxation mean?
I’m thinking of incorporatin and I’m trying to find out whether an S Corp or LLC would work best for me. But I’m not sure what pass-through taxation means.

Answers and Views:

Answer by sumbumblebee
Pass-through taxation means that the business entity itself doesn’t pay any taxes. Instead, all taxable income is passed through to the owners/members (depending on which type of entity you start) on a form called a K-1. You then take this form, just like you would a W-2 or a 1099 and input the information on your individual taxes.

In this way, these types of entities aren’t taxed twice like a regular C corporation is. There, the entity itself is taxed, as are the shareholders when they receive income in the form of dividends.

Answer by oldgirlINDY
The tax gain or loss is paid by the parners in a parnership instead of the parnership paying the taxes.

See the web site below

Answer by Judy
Be sure you have a good reason before you incorporate. If you need the protection of your personal assets, OK, but don’t think it will save you taxes. It won’t. And in the case of an S-corp, the corp will have to file its own return plus you have to file your personal return, so it could end up costing you money, for fees or for tax prep.

Answer by jayteaou812
Usually the accounting firm preparing the corporate tax returns will calculate the profit or loss by adding the total deposits and subtracting the total withdrawals of the corporation. If the resulting number is positive then there is a profit. If the resulting number is negative then there is a loss. The resulting profit or loss is recorded on the K1 which is reported on Schedule D of the 1040 and factored into the taxpayers individual income tax return. The profit or loss will be distributed to each owner of the corporation based on their respective share of ownership. The IRS website has some good information on this. See the reference below.