In the emergency room, there’s a good chance medical doctors isn’t an employee of the hospital. She might be an independent contractor and, for tax purposes, the owner of a small business whose sole purpose is to sell her services as a physician.
That’s one example of a” pass-through business ,” now a hot topic in the U.S. taxation reform debate. Everything from a giant real estate business to a corner liquor store can be a pass-through, so called because it doesn’t pay taxes itself but instead passes earnings on to the owner, who pays taxes based on his or her own individual rate.
In fact, of the 26 million businesses in the U.S. in 2014, according to the Brookings Institution, 95 percent paid taxes on a pass-through basis. Unless a company is big or its ownership is complex, a pass-through is typically the simplest and lowest-tax option. Actors, designers, mills, and football teams can all structure themselves as pass-through entities.