Final Answer:
The given statement "Owners of a flow through entity are taxed on the entity's business income whether the income is distributed or not" is True.
Step-by-step explanation:
Owners of flow-through entities, such as partnerships, S corporations, and sole proprietorships, are indeed taxed on the entity's business income regardless of whether the income is distributed to them or retained within the entity. This taxation method is based on pass-through taxation, where the entity itself is not taxed at the corporate level; instead, the income "passes through" to the owners, who report their share of the entity's income on their individual tax returns.
For partnerships and S corporations, profits or losses flow through to the owners' personal tax returns, where they are taxed at the individual income tax rates. Even if the owners do not receive any distributions from the entity, they are still responsible for paying taxes on their allocated share of the entity's income.
This tax treatment encourages business investment and entrepreneurship by allowing owners to be taxed only once at the individual level, avoiding double taxation that occurs with traditional C corporations. However, it also means that owners must report their share of income, whether distributed or retained, and pay taxes on it. Hence, despite the lack of immediate distribution, owners are taxed on the entity's business income.