Flow-Through Entity

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Definition of 'Flow-Through Entity'

A flow-through entity (FTE) is a business structure that allows its owners to pass their share of the business's profits and losses directly to their personal tax returns. This means that the FTE itself does not pay any income tax, and its owners are responsible for paying taxes on their share of the business's profits.

There are a number of different types of FTEs, including:

* S corporations
* Limited liability companies (LLCs)
* Partnerships
* Trusts

Each type of FTE has its own unique tax rules and regulations, so it's important to consult with a tax advisor before choosing an FTE structure for your business.

One of the main advantages of using an FTE is that it can help you to save on taxes. This is because the FTE's profits and losses are passed through to your personal tax return, which can lower your overall tax liability.

For example, if your FTE makes a profit, you can use that profit to offset other income that you have, such as your salary from a job. This can reduce the amount of income tax that you owe.

Similarly, if your FTE makes a loss, you can use that loss to reduce your taxable income. This can save you money on taxes in the future.

Another advantage of using an FTE is that it can provide you with more flexibility and control over your business. This is because you are not subject to the same rules and regulations as a corporation. For example, you can make decisions about how to operate your business without having to get approval from shareholders or board members.

However, there are also some disadvantages to using an FTE. One disadvantage is that you may have to pay more self-employment taxes. This is because you are considered to be self-employed when you own an FTE, and you are responsible for paying both the employer and employee portions of self-employment taxes.

Another disadvantage is that you may have more difficulty getting financing for your business. This is because lenders are often more hesitant to lend money to FTEs than they are to corporations.

Overall, whether or not an FTE is right for you will depend on your individual circumstances. If you're considering using an FTE for your business, it's important to weigh the advantages and disadvantages carefully before making a decision.

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