Under US federal income tax law, the income and losses of some entities are “passed through” (also described as “flowing through”) to their owners. In other words, the income and losses are subject to US federal income tax as if they were earned directly by the entity’s owners, rather than the entity itself. Sole proprietorships, partnerships (including limited partnerships), S corporations, and LLCs that have not elected to be taxed as C corporations are common examples of such “pass-through” entities. In contrast, C corporations pay US federal income tax on the C corporation’s income at the entity level and no income (or loss) of the C corporation’s operations flows through to its owners. Despite their treatment for US federal income tax purposes, pass-through entities may be subject to other taxes at the entity level, including payroll taxes and even income taxes imposed by US state or foreign taxing authorities.

Last reviewed: October 25, 2022

Flow Through Taxation