Tax
Pass-through taxation
Pass-through taxation is a treatment where a business pays no income tax itself and its profit is instead taxed to its owners. LLCs, partnerships and S-Corporations are pass-through entities by default in the United States, unlike C-Corporations.
In plain terms: The company does not pay tax; the owners do.
Why it matters
The default advantage of the LLC, and the reason venture funds dislike it — pass-through income creates complications for their tax-exempt limited partners. Note that pass-through means owners are taxed on profit allocated to them, not only on cash they withdraw.
Read the full guideUS business taxes