Debtors Whacked—Smacked Schlack’Ed
The majority of companies in the United States are structured as pass-through businesses and are categorized under as sole-proprietor, partnerships, limited liability companies, and S corporations, for federal income tax purposes. This means these entities are not subject to income tax to avoid double taxation. Rather the profits are passed directly through the business to the owner, who then pay full tax on their business income as an individual. This is in contrast with traditional C corporations, which pay tax at the entity level through the corporate income tax.
Owners of pass-through businesses pay the full tax on their business’s income every year as the business earns it. Owners or shareholders of C corporations can defer the taxation on their share of corporate income as long as the corporation retains its earnings or if the shareholder does not realize a capital gain on his stock.