Pass-through entity

For U.S. federal income-tax purposes, a pass-through generally allocates taxable income or loss to its owners for reporting under the applicable rules. Tax classification, entity-level obligations and other jurisdictions must be considered separately.

Pass-through entity in practice

Hypothetical for tax year 2025: a U.S. domestic limited liability company with multiple members is classified as a partnership and has made no corporate election. Its US$2m of taxable income is allocated among owners under the applicable rules and reported on their returns. This allocation is distinct from any cash distributed.

Source: IRS: LLC filing as a corporation or partnership.

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