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What is a Flow-Thru Entity?
A Flow-Thru Entity is a legal entity that does not pay taxes, that is the first attribute. It is an entity where any income, expenses, interest income, dividends, or any income of a taxable item is passed through to its owners on a pro-rata basis.
An example: a partnership will have at least two partners, and they will have an ownership percentage, say it is 50 % each. So whatever underlying partnership has as a taxable event during that year, each partner will pick up those particular items; so it is a flow-through, the entity is a reporting entity, it does not pay any taxation.
As a result, only these individuals—and not the entity itself—are taxed on the revenues. Flow-through entities are a common device used to avoid double taxation, which happens with income from regular corporations.
Double taxation solution?
Flow-through entities are a common device used to avoid double taxation on earnings. With flow-through entities, the income is taxed only at the owner’s individual tax rate for ordinary income: The business itself pays no corporate tax. Sole proprietorships, partnerships (limited, general, and limited liability partnerships), LLCs, and S Corporations are all types of flow-through entities. One downside of flow-throughs: owners can be taxed on income that they do not actually receive.
Americans Overseas can help you with your Flow-Thru Entity
Americans Overseas offers a large independent network of US tax accountants and financial planners, specialized for Americans living abroad. Based on your personal situation, we provide information and introduce you to the appropriate expert in our Americans Overseas network, free of charge and free of any obligation.