Taxation of Entities & Pass-Throughs
C corps pay their own tax; REITs, MLPs, LLCs and S corps mostly pass income through.
What is Taxation of Entities & Pass-Throughs?
C corporations are taxed at the entity level. Pass-through entities - partnerships, most LLCs, S corporations - report income on owners' returns, usually via Schedule K-1. REITs avoid entity tax by distributing at least 90% of taxable income. MLP income held in an IRA can create unrelated business taxable income (UBTI). Trusts pay tax on retained income at highly compressed brackets.
Taxation of Entities & Pass-Throughs: a worked example
An MLP investor receives a K-1 rather than a 1099 - which complicates tax filing.
More terms in Clients, Strategy & Tax
Sole Proprietorship
A business owned by one person with no legal separation from the owner.
General Partnership
Co-owners share management and unlimited liability; income passes through.
Limited Liability Company (LLC)
Limited liability for owners with pass-through taxation by default.
C Corporation
A separate taxpayer - profits taxed at the corporate level, then again as dividends.
S Corporation
A corporation that passes income through to shareholders, avoiding double tax.
Trust & Estate Accounts
Accounts run by a fiduciary - a trustee or an executor - under a governing document.
Foundations & Charities
Tax-exempt organizations investing for a mission, often in perpetuity.
Client Profile & Data Gathering
The financial and nonfinancial facts every recommendation must rest on.