Question

Entities such as partnerships, LLCs, and S corporations are known as - entities because their income is reported on the owners' tax returns. Any expenses or losses from these entities are typically deductible AGI.

A) Flow-Through
B) Business-Owned
C) Passive-Activity
D) C-Corporation

Answer 1

Partnerships, LLCs, and S corporations are referred to as flow-through entities because their income passes through to the owners' tax returns. Unlike C-Corporations, which pay corporate income taxes on profits, flow-through entities allow owners to claim income and losses on their own returns.

Step-by-step explanation:

Entities such as partnerships, LLCs, and S corporations are known as flow-through entities because their income is reported on the owners' tax returns, rather than the company paying the taxes itself. This means that any expenses or losses from these entities are typically deductible from the owner's Adjusted Gross Income (AGI). As opposed to these, a C-Corporation is a business structure that is treated as a separate legal entity and thus pays corporate income taxes on its profits, which can fall into several corporate tax brackets. New business structures such as LLCs (Limited Liability Companies) provide a mix of the flexibility of a partnership with some liability protections of a corporation, without the business itself being taxed at a corporate level.