Since taxes are not voluntary, it is important understand what are the impacts of taxation in our lives. So today I am going to talk about tax models.
There are only three types of entities subject to income taxation in the United States: the individual, the C corporation, and the fiduciary. An individual is a male or female person subject to the tax. A C corporation is a business entity formed under state law on which the income tax is imposed directly. A fiduciary is either an estate or a trust; it may be subject to income taxes, but in most cases the income is passed through to the income beneficiaries and is included in the beneficiaries income for taxation. The fiduciary is a modified "flow-through" entity because the tax may be imposed on income retained by either the estate or the trust, or it may be imposed on the recipients to whom the income is distribuided.
Individual and corporate taxpayers pay the bulk of all income taxes collected. A business may be organized as a sole proprietorship, a partnership, a limited liability company (LLC) or an S corporation. The income taxes on these businesses are not imposed or paid by the businesses (except for LLCs electing to be taxed as C corporation); instead, at the end of the tax year their income flows through to the owners and the owners pay the taxes.
The income of C corporations is subject to double taxation: once at the corporate level and again at the owner level when the income is distributed as dividends to the owners. The flow-through entities avoid double taxation because their income is passed through at the end of the owners and taxed once only at the owner level.
