In an S corporation, taxes are "passed through." This means which of the following?

Question

Quizplus · Accepted Answer

"Passed through" means that the profits and losses of the S corporation are reported on the individual owner's personal income tax return and taxed at their individual tax rate. This avoids double taxation where the corporation is taxed at the corporate level and then again when owners receive dividends or distributions. Option A is incorrect because the individual does not pay taxes twice. Option B is incorrect because the S corporation still pays taxes on its profits, but they are passed through to the individual owners. Option D is incorrect because revenue taken by the owner is still subject to income tax.

In an S Corporation, Taxes Are "Passed Through