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Get tax-free perks in pass-through entities

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in Small Business Tax

There are certain tax advantages to operating your business as a pass-through entity like a partnership, an LLC treated as a partnership for tax purposes, or an S corporation. Notably, you escape the double taxation threat that C corporations face.

Alert: Be aware of tougher rules for fringe benefits. Only a limited number of benefits provided to pass-through entity owners qualify for tax-free treatment.

These rules generally apply to benefits provided to partners, more than 2% of S corp shareholder-employees, and members of a limited liability company (LLC) if the LLC is taxed as a partnership. Note: An LLC can choose to be taxed as a C corp, in which case statutory fringe benefits are tax free to the members, but few LLCs make this choice.

Following is a rundown of fringe benefits that won’t cause tax problems for partners, LLC members treated as partners, or more-than-2% S corp shareholder-employees:

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