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Incorporation Glossary

PASS-THROUGH (INCORPORATION)

Sole proprietorships, partnerships, and S corporations are pass-through entities for federal income tax purposes. This means these entities are not subject to income tax. Rather, the owners are directly taxed individually on the income, taking into account their share of the profits and losses. This avoids double taxation. Note that, by default, an LLC is also a pass-through entity, but the owners of an LLC can elect to be taxed as a "C Corporation" instead.