Disregarded Entity Definition – What is a Disregarded Entity?

Written by Peter Tran

June 29, 2017

What is a disregarded entity?
A disregarded entity is a business entity which is considered to be an undivided part of the owner of the entity for federal tax purposes. That is, the entity is disregarded an entity separate from the owner.

A good example of disregarded entities is a single member LLC that es not choose to be clsified a corporon for federal tax purposes. A single member limited liability company that is not clsified a corporon automcally defaults to a disregarded entity, and file federal income tax return a sole proprietorship.

How es IRS treat a disregarded entity?
IRS es not require a disregarded entity to file a separate income tax return because the sets of the disregarded entity are considered the sets of the owner of the entity. The entity is allowed to be taxed a “pass-through” entity on its owner’s personal tax return. The income, deductions and loss of the disregarded entity are included in its owner’s return.

Why use a disregarded entity?
The owner of a single member LLC who es not want to pay additional federal income for the business entity can choose to be a disregarded entity. That is, the owner of the disregarded entity just s to file C with their personal income tax like a sole proprietorship.

This is not intended to constitute the rendering of legal, accounting, or other professional services or to serve a substitute for such services.



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