Jargon Item of the Month

“Pass-through Entity”

The U.S. federal income tax falls on pretty much every person and legal entity in the Country. So people, corporations, trusts and estates* and similar things are all subject to the income tax system.

But certain legal entities, mainly partnerships, S-corporations, and certain limited liability companies, are treated as “pass-through entities” for federal income tax purposes. This means those entities generally are not themselves subject to income tax (even though they file a tax return). Instead, all the various tax return items — income, gain, loss, deduction and credit — “pass through” the entity and are taxed only to the owners. For more about taxation of these pass-through entities, See ‘Business Entities’.

In a future Article, we’ll look at some of the changes made to pass-through entities under the 2017 tax bill.

^{* “…And my advice to those who’ve died; declare the pennies on your eyes.” – Lennon, McCartney}