(03-29-2024, 01:40 PM)mikesez Wrote:

(03-29-2024, 01:00 PM)The Real Marty Wrote: What do you mean about pass-through income?   As far as I know, pass through income is taxed.  For example, an S-corporation passes its income through to the shareholders, and they pay income tax on it, whether they receive any money or not.  So the shareholders are paying income tax on behalf of the corporation.  

Is there a situation where pass through income is not taxed?

If they want to extract more revenue from the rich, the best way to do that would be with a consumption tax.

Pass through income is taxed but it gets a special deduction first. The deduction is not needed in my opinion. It should be subject to the same deductions as ordinary income.

What "special deduction" are you talking about?

A regular "C" Corp files a Form 1120 as their income tax return and an "S" Corp (pass thru entity) files a Form 1120-S.
Both forms report total income at the top.
Both forms report "ordinary and necessary" expenses in the middle.
And both forms subtract expenses from income to arrive at Net Income.

The C Corp then pays income tax on the Net Income at the more favorable Corporate tax rate NOT the Ordinary Income tax rate.
The S Corp (ie, the pass thru entity) takes the Net Income and issues Forms K-1 to the shareholders.
The recipients of Form K-1 then report the amount on Page 2 of their individual income tax return Form 1040 Sch E where the proceeds are then taxed at the Ordinary Income tax rates and not the more favorable Corporate tax rate.

(Partnerships which are treated as pass thru entities work similarly to "S" Corps except they use a Form 1065 instead of Form 1120-S.  But they still issue K-1 and the partners then report the K-1 income on Page 2 of Form 1040 Sch E where it is taxed as Ordinary income.)

So contrary to what you said pass thru income IS taxed as Ordinary income and not at the more favorable Corporate tax rate nor at the more favorable Capital Gains tax rate.

Where is this "special deduction" that you mentioned?  Is it a line on Form 1120-S?  Is it a line on Form 1040 Sch E?

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