What type of business organization is designed to avoid double taxation on income?

The type of business organization specifically designed to avoid double taxation on income is the S Corporation. An S Corporation allows profits to be passed through directly to the owners, or shareholders, without being taxed at the corporate level. This means that income is only taxed once, at the individual level, rather than being taxed at both the corporate and personal levels, which is the case for traditional C Corporations.

The S Corporation structure is attractive for business owners looking to protect their personal assets from liabilities while also benefiting from pass-through taxation. This makes it a popular choice for small to medium-sized businesses that wish to maximize tax efficiency while still enjoying the protections offered by a corporate structure.

Other types of organizations, such as partnerships and limited liability companies (LLCs), also typically have pass-through taxation characteristics. However, it is specifically the S Corporation that has formal IRS requirements to attain that status, which allows unique benefits like limited liability along with the avoidance of double taxation. Sole proprietorships also avoid double taxation but do not provide limited liability protections, which is a critical distinction when considering business structures.