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Key takeaways
- Pass-throughs avoid the double taxation of C-corporations.
- Owners may qualify for the Section 199A QBI deduction (up to 20% of qualified business income).
- Income and losses are reported to owners on Schedule K-1.
- Pass-through status interacts with self-employment tax, basis tracking, and state-level taxes — plan with a CPA.
How Olomon thinks about this
Pass-through K-1s are notoriously late, complex, and lost. Olomon stores K-1s alongside the entity that issued them and the household that owns it, so the household and CPA can see, at any moment, every entity in the picture and the documents each one will produce.
In-depth definition
Pass-through taxation is the default for most U.S. small businesses. It eliminates the corporate-level tax, simplifies distributions, and — since the Tax Cuts and Jobs Act — unlocks the QBI deduction for many service and non-service businesses below specific income thresholds.
Frequently asked questions
By default, yes — single-member LLCs are taxed as sole proprietorships and multi-member LLCs as partnerships. LLCs can also elect to be taxed as S-corporations or C-corporations.
Sources
Primary, authoritative references.
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Related terms
More from Taxes & Business.
Cite this page
APAOlomon Editorial Team. (2026). Pass-through entity. Olomon Financial Glossary. https://olomon.com/financial-glossary/pass-through-entity