Many businesses are taxed as flow-through enterprises, which are not subject to the corporate income tax as are corporations taxed under subchapter C of the Internal Revenue Code (C corporations). Instead their shareholders or partners include their allocated share of profits in taxable income under the individual income tax. These include corporations organized under subchapter S of the Internal Revenue Code (S corporations), partnerships (including LLCs), and sole proprietorships.

Background Information

Briefing Book entries on Business Income:

• Business Taxation: What are flow-through enterprises and how are they taxed?
• The Bush Tax Cuts: How are small businesses and entrepreneurs affected?

Expiration of the Bush Tax Cuts: How would the president's plan affect businesses?

TPC Distribution Tables

• View TPC’s Distributional Analyses of Business Income
  

Testimony and TPC Papers

“Tax Policy and Small Business,” Donald Marron (Testimony before the U.S. House of Representatives Subcommittee on Select Revenue Measures, Committee on Ways and Means, March 3, 2011)

“Tax Issues Related to Small Business Job Creation,” Eric Toder (Testimony before the Senate Committee on Finance, February 22, 2010)

“Tax Reform and Taxation of Small Business,” Eric Toder (Testimony before the Senate Committee on Finance, June 5, 2008)

“Does the Federal Income Tax Favor Small Business?,” Eric Toder (TPC paper presented at the National Tax Association Proceedings of the 100th Annual Conference, 2007; paper published January 30, 2008)

TaxVox Posts

• Small Business and Taxes: Not What You Think (September 27, 2011)
• Most Businesses Won't Benefit from Corporate Tax Reform (March 4, 2011)
• Six Thoughts on Taxes and Small Business (March 3, 2011)
• More on Individual Tax Rates and Small Businesses (August 13, 2010)
• The Bush Tax Cuts and Small Business: What We Know (August 4, 2010)

See other posts about business income on TaxVox

Tax Facts

• Sources of Business Income Reported on Individual Tax Returns by AGI, 1999-2009
• “Fewer Businesses Are Organized As Taxable Corporations,” Eric Toder and Julianna Koch (Tax Notes, August 6, 2007)
• “Small Businesses and Marginal Income Tax Rates,” William G. Gale (Tax Notes, April 26, 2004)
• “Small Business and Flow-Through Entities,” Peter Orszag (Tax Notes, April 12, 2004)

Further Reading

Knittel, Matthew, Susan Nelson, Jason DeBacker, John Kitchen, James Pearce, and Richard Prisinzano, "Methodology to Identify Small Businesses and Their Owners," OTA Technical Paper 4, August 2011.