can someone please tell me what a pass through entity is and the purpose of it?
How do they pertain to an llc? Also how do they pertain to filing one’s llc taxes?
please help!!!
a pass-through entity doesn’t pay any taxes. Instead, its income “passes through” the entity to one or more personal tax returns (1040). A partnership, for example, is a pass through entity. The partners pay individual taxes on their respective share of the partnership income.
An LLC may or may not be a pass through entity. Since there is no tax code for “LLC” you must choose to have it taxed under personal or corporate tax laws.
If you have a single member LLC, you may choose sole proprietor (a pass through entity where the LLC will appear as a Sch C company on your personal return) or corporation (where the entity will pay its own taxes under corporate tax laws).
A multi-member LLC may choose partnership or corporate tax status. An LLC taxed as a partnership (a pass-through entity) will appear on the personal tax returns of the members as any other partnership. Again, an LLC taxed as a corporation will pay its own taxes.
Further, an LLC electing corporate status, may also elect to be considered a C-corp or S-corp for tax purposes. An LLC taxed as S-corp is a special corporation that is also a pass-through entity, but with certain benefits and limitations.
Two things to note: 1) once you make the election, then the LLC is considered exactly the same as any other entity taxed that way. An LLC taxed as an S-corp is exactly the same as a full S-corp - for tax purposes. 2) this tax election has no effect on the entity structure itself: it’s still an LLC. It is only a tax decision - it has no other effect.
hello mcwagner,
what do I need to know or consider to choose any of the ways you posted? thanks