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Definition of Pass-Through Taxation

Pass-through taxation is a tax system in which the profits or losses of a business entity, such as a partnership, limited liability company (LLC), or S corporation, are not taxed at the entity level. Instead, the income "passes through" to the individual owners, who report and pay taxes on their share of the business's income on their personal tax returns. This avoids double taxation, as the business itself is not subject to separate tax at the entity level.

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