Business
Pass-through entity
A business that pays no income tax itself and passes its profit to its owners to report.
Sole proprietorships, partnerships, S-corporations and most LLCs are pass-through. A C-corporation is not: it pays tax on its own profit, and its shareholders pay again on dividends.
Profit is taxed to the owner when the business earns it, not when it hands over cash, which is why an owner can owe tax on money still in the business account.
Pass-through owners are the group the qualified business income deduction was written for.
Related
Terms that come up beside this one
Qualified business income deduction
A deduction of up to 20% of qualified business income, available to owners of pass-through businesses.
Partnership
A business with more than one owner that files its own information return and passes profit through to the partners.
S-corporation
A tax election under which a business pays its owner a salary and passes the remaining profit through to them without self-employment tax.
Schedule K-1
The statement a partnership or S-corporation issues to each owner reporting their share of its income, deductions and credits.