Experienced Attorneys Who Will Fight For You

What is a pass-through business?

On Behalf of | May 7, 2023 | Business Law

There are many different types of business structures that entrepreneurs in Nevada can choose to take advantage of when starting their own organizations. Each comes with unique benefits and drawbacks based on someone’s business model and the scope of the operations that someone hopes to achieve.

Some businesses start out from their earliest days as very complex organizations. Corporations with boards of directors and nonprofit entities require a lot of planning and investment to form. Other business structures are relatively easy to start but may not offer as much protection for an entrepreneur. Whereas, middle-ground and hybrid options can offer some of the best of both worlds.

Regardless of the company structure that you choose, you’ll likely be in a position to structure your enterprise as a “pass-through” business, unless you opt to incorporate or tax a limited liability company as a distinct entity. Pass-through business entities are among the most common in Nevada, and people choose them for a number of reasons.

What exactly is a pass-through business?

When someone refers to a business as a pass-through business, what they mean is that the business does not pay corporate taxes but instead passes revenue through to the owner. Basic businesses including sole proprietorships and general business partnerships are pass-through business entities. Any business that does not pay taxes as a separate entity is potentially a pass-through business.

What are the benefits of a pass-through business?

For startups and professional practices, the pass-through tax benefits can be significant. Not needing to file a corporate tax return and instead claiming the income as an individual can make for an easier tax process and may open someone up to numerous write-offs and deductions as a business owner. Additionally, the ease of formation is a common reason why people choose to start pass-through entities instead of a corporation. They usually won’t need to file complicated paperwork with the state to start doing business.

What are the drawbacks or risks?

The pass-through tax system can be a deterrent in some cases, as it denies a business the opportunity for certain tax protections only available in a business tax filing. Additionally, pass-through businesses don’t provide as much protection from personal liability as more complex business structures. Owners could potentially end up held responsible for debts owed by the business or judgments granted against the business after a civil lawsuit.

Every new company has unique needs that inform what business model would be ideal and how the owner or owners of that enterprise can best protect themselves. Seeking legal guidance to learn more about one’s options when starting a new business can make it easier to choose the formation structure that offers the most benefits and the least drawbacks given an individual’s unique circumstances.

Recent Posts



RSS Feed

FindLaw Network