Taxation at Entity and Owner Level

The entity type and geographical location of where an organization or business is established will greatly influence the tax treatment of income at the federal, state, and local levels.

Charitable organizations are granted tax-exempt status under Section 501(c)(3). Individuals can setup sole proprietorships, partnerships and LLCs to control liability and enhance the benefits of deduction/loss possibilities, but still maintain the benefits of full control.

If you decide to incorporate a business, LLCs, S-corporations and C-corporations will provide a higher degree of limited liability and more variables to raise capital for future growth of the organization.

Flow through of Income and Losses

Depending on the type of entity, the income generated may be taxed at the corporate level or flow-through to the owner/shareholder. With the exception of limited liability companies, the tax law is pretty clear. LLCs can be setup as sole proprietorships, partnerships, s-corps and c-corps, so their taxation will follow the selection of the entity. The chart below will outline the tax treatment of income and who receives the loss deductions.
Entity Income
Owner Income
Entity Losses
Owner Losses
Sole Proprietor
No tax
Owner taxed
No Loss
Owner deducted
No tax
Partners taxed
No Loss
Partner deduction
No tax
Shareholder taxed
No Loss
Shareholder loss
Entity taxed
Shareholder taxed
Entity takes loss
Shareholder loss

Special Taxes

Related Articles
  1. Small Business

    Should You Incorporate Your Business?

    Find out how becoming a corporation can protect and further your finances.
  2. Small Business

    Which Type of Organization Is Best For Your Business?

    Learn the differences between the types of business organizations so you can determine how to best structure your business for tax and liability limitations.
  3. Taxes

    Taxes in New York for Small Business: The Basics

    Learn how small businesses are taxed in New York, and understand how tax rates vary based on whether the business is an S corporation, LLC or partnership.
  4. Taxes

    Taxes in Florida for Small Businesses: The Basics

    Learn why Florida's tax laws make it an attractive place to start a small business, and understand the types of taxes a small business owner must pay there.
  5. Taxes

    How Private Equity and Hedge Funds are Taxed

    Private equity and hedge funds offer an appealing tax structure for those who can afford to invest in them. Here's why.
  6. Trading

    Benefits Abound For Active Traders Who Incorporate

    Trading through a separate business structure allows active traders access to all of the tax mitigation and asset protection strategies available.
  7. Small Business

    What's a Sole Proprietorship?

    A sole proprietorship is an unincorporated business that has one owner who pays the taxes on the profits of that business.
  8. Investing

    LLC Vs. Incorporation (Inc.): Which Should I Choose?

    Learn about the advantages of forming an LLC over a corporation, including ease of administration. Read about the advantages that a corporation may offer.
  9. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center