Income and expenses flow through to shareholders. Pass-through items retain the same character in the hands of the shareholder as they had in the hands of the corporation. Wages paid to these employees must be reasonable. Additional profits are passed through to the shareholders and are taxable for income tax purposes but not for self-employment tax purposes. Double taxation of profits is avoided.
Losses flow through to shareholders.
Recognition of loss is limited by the partner's basis, at-risk rules and passive activity rules. A hybrid entity, generally formed under state law, that combines the pass-through attributes of a partnership with the limited liability of a corporation. The LLC can also elect to be taxed as a C corporation, although most do not choose this taxation. The LLC is normally taxed as a partnership. Income and profits flow through to the members.