pass through taxation

  

Definition

Method in which a firm's owners pay income tax on the firm's income and not the firm. Sole proprietorships, S corporations, and partnerships pay tax through this method.

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  • I was explained how pass through taxation worked and how they got taxed on their income, rather than the firm's, which was pretty interesting.

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  • The pass through taxation was advantageous to the newly incorporated firm as they ended up paying less taxes than the alternative option.

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  • Although S corporations are not usually required to pay federal income taxes, instead using the method of pass through taxation, it should be noted that their shareholders, by bearing the brunt of the companies losses and accruals, a net gain or loss that they must in turn report to the Internal Revenue Service, it can be said that 'Uncle Sam,' still gets his.

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