Pass-Through Taxation

Pass-through taxation is a system where a business’s income is not taxed at the corporate level. Instead, the profits or losses pass directly to the owners or investors, who report them on their personal tax returns. This means the business itself doesn’t pay taxes separately; the individual owners handle the tax obligations based on their share of the business. Common examples include LLCs, S-corporations, partnerships, and sole proprietorships. This approach often results in simpler tax filing and can avoid double taxation, where both the business and owners would otherwise be taxed on the same income.