There is no Federal income tax assessed on partnerships (including those formed as LLCs) or S corporations. Since all states follow the Federal approach as to entity taxation, state income taxation is a neutral factor in the selection of an entity form.

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While it is true that partnerships and S corporations are not subject to Federal income tax, many states do not follow the same approach and may require these entities to pay state income tax. Therefore, state income taxation can be a relevant factor in the selection of an entity form.

There Is No Federal Income Tax Assessed on Partnerships (Including