Pass-through entity
Certified Financial Planner glossary · Certified Financial Planner
Definition
A business whose income is taxed to its owners rather than at the entity level.
Pass-through entity in plain English
An S corporation reports a big profit and the owner is shocked there is no separate corporate tax bill like a C corp. Pass-through entity describes a business whose income is taxed to its owners rather than at the entity level: partnerships, S corporations, and most LLCs taxed as such. The K-1 is the messenger. Entity-level tax belongs to C corporations. Comparing double taxation to owner-level taxation, pass-through is the structure that skips the corporate layer (watch for special taxes the facts may still add).
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