If not, the company is a pass-through entity.
There are some exceptions, but generally a business faces double taxation as a C Corp. The partnership tax return documents the partners, the percentages of ownership, and the partnership’s profit-but no taxes are actually calculated on the partnership tax return. The $10,000 is then reported on her personal tax return as income from her partnership. The partnership would file a tax return and issue her a Schedule K-1, which reports the $10,000 in income. Assume, for example, that Patty’s catering business is a partnership and her share of the income is $10,000. Sole proprietorships, partnerships, S Corps, and several other businesses are referred to as pass-through entities.
The owners can retain the after-tax earnings for use in the business, or pay shareholders a cash dividend.