What is Pass-Through Taxation? Definition, requirements, and how it applies to your business formation. Learn everything about pass-through taxation for LLCs and corporations.
# Pass-Through Taxation
Pass-through taxation is a tax structure where business income is not taxed at the entity level but instead 'passes through' to the owners' personal tax returns. LLCs, S-Corps, partnerships, and sole proprietorships all use pass-through taxation by default, avoiding the double taxation that C-Corps face.
Under pass-through taxation, owners pay tax on their share of business profits regardless of whether those profits are actually distributed. This means you can owe taxes on income that remains in the business bank account.
Lovie helps founders choose the right tax structure during formation — pass-through for most small businesses, C-Corp for those planning venture fundraising.