What is a "pass through" tax entity, and why is "pass through" status considered advantageous?

A "pass through" entity is an entity that is not taxed at the entity level for income tax purposes. Rather, all income, deductions, losses and other tax items are "passed through" to the owners of the business. Pass through tax status avoids "double taxation," where the entity pays income taxes and the owners of the business also pay taxes when profits are distributed to the owners. "Double taxation" typically occurs with corporations that have not elected to be taxed as an S Corporation, or which are ineligible to be treated as an S Corporation.

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