Avoiding Double-Taxation – 93% of all Business Owners and 70% of Small Business Owners (employing less than 100 employees) Choose to Organize as Flow-Through Businesses

Business Owners Say “No” to Double Taxation

With 13% of all businesses being structured as S Corporations, 6% as Partnerships and 74% as Sole Proprietorships, a total of 93% of all businesses are taxed as “flow-through” entities. Flow-through entities (S Corps, Partnerships, Sole Proprietorships, and most LLCs) are subject to a single level of tax on earned income at the personal income tax level. C Corps (and LLCs that choose to be taxed as a C Corp), by contrast, are subject to two levels of tax on earned income (i.e. the dreaded “double taxation”) – once at the corporate level and then again when it is distributed as dividends or when retained and then taxed as capital gains to the shareholders.

70% of All Small Businesses are Structured as Flow-Through Businesses

For firms with less than 100 employees, 70% are structured as flow-through entities. Flow-through entities also account for 35% of total business receipts and employ 54% of the private sector work force.

Note: Businesses organized as LLCs are included in the above percentages depending on what tax election they have made.

Source: “The Flow-Through Business Sector and Tax Reform” report prepared for the S Corporation Association by Ernst & Young