Pass-through, also known as pass-along, refers to the practice of including additional costs in the price that the buyer or renter must pay when someone sells or rents something.
Pass-through costs, also known as pass-along costs, are the expenses that a seller or lessor charges to the buyer or lessee. For example, a landlord may pass-through the cost of utilities like water and electricity to their tenants, while a manufacturer may pass-through the cost of raw materials to their customers. These costs are added to the final price of a product or service, as the landlord and manufacturer are not absorbing the expenses themselves but passing them on to their customers. This can potentially impact the overall cost and influence the buyer’s decision to make a purchase.
A pass-through entity is a business structure where the profits and losses of the business “pass through” to the owners’ personal tax returns. This means that the business itself does not pay taxes, but the owners are responsible for reporting and paying taxes on their share of the business’s income.
Common examples of pass-through entities include sole proprietorships, partnerships, limited liability companies (LLCs), and S corporations.
Pass-through entities are not subject to corporate income tax. Instead, the owners report their share of the business’s income on their personal tax returns and pay taxes at their individual tax rates.
Generally, anyone can form a pass-through entity, but certain professions such as doctors, lawyers, and accountants may have restrictions or additional requirements depending on the jurisdiction.
Yes, pass-through entities can have multiple owners. Partnerships and LLCs, for example, can have multiple partners or members.
Some advantages of forming a pass-through entity include simplified taxation, flexibility in profit distribution, limited liability protection (in the case of an LLC), and potential tax deductions.
One potential disadvantage is that owners of pass-through entities are personally liable for the business’s debts and obligations. Additionally, the owners may face self-employment taxes on their share of the business’s income.
In most cases, it is possible to convert a pass-through entity to a different business structure, such as a C corporation. However, this conversion may have tax implications and should be carefully evaluated with the assistance of a legal or tax professional.
Yes, pass-through entities can hire employees. The employees’ wages and benefits are separate from the pass-through taxation structure and are subject to payroll taxes.
Yes, all states recognize pass-through entities. However, specific regulations and requirements may vary from state to state, so it is important to consult with a local attorney or tax advisor to ensure compliance with state laws.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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