Understanding Pass-Through Entities and Virginia Tax

If you own a pass-through entity in Virginia, such as an S corporation or partnership, you need to be aware of the tax implications. Here’s what you need to know.

What Is a Pass-Through Entity?

A pass-through entity is a type of business structure that does not pay taxes at the entity level. Instead, the profits and losses of the business “pass through” to the owners or shareholders, who report them on their personal income tax returns.

Types of Pass-Through Entities

The most common types of pass-through entities are S corporations and partnerships. Limited liability companies (LLCs) can also be classified as pass-through entities.

Virginia Tax Treatment of Pass-Through Entities

In Virginia, pass-through entities are subject to a state tax on their income. However, the tax is imposed at the individual owner level, rather than at the entity level.

Pass-Through Entity Tax Credit

Virginia offers a pass-through entity tax credit to help offset the state tax on pass-through entity income. The credit is equal to 6% of the pass-through entity’s Virginia taxable income, up to a maximum credit of $50,000 per year.

Conclusion

If you own a pass-through entity in Virginia, it’s important to understand the tax implications. Consult with a tax professional to ensure that you are complying with all state and federal tax laws.