Business Entities

Disregarded Entity

A disregarded entity is a business entity that is separate under state law but ignored as separate from its owner for federal income tax purposes.

Quick answer

A disregarded entity is a business entity that is separate under state law but ignored as separate from its owner for federal income tax purposes.

It matters because the entity can still be legally real while its tax reporting flows directly onto the owner's return.

A single-member LLC is often treated as a disregarded entity unless it elects another tax classification.

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Plain-English Definition

What Disregarded Entity means

A disregarded entity is a business entity that is separate under state law but ignored as separate from its owner for federal income tax purposes.

Why it matters It matters because the entity can still be legally real while its tax reporting flows directly onto the owner's return.
Simple example A single-member LLC is often treated as a disregarded entity unless it elects another tax classification.
Related Questions

Questions people ask about Disregarded Entity

What does Disregarded Entity mean?

A disregarded entity is a business entity that is separate under state law but ignored as separate from its owner for federal income tax purposes.

Why does Disregarded Entity matter?

It matters because the entity can still be legally real while its tax reporting flows directly onto the owner's return.

What is a simple example of Disregarded Entity?

A single-member LLC is often treated as a disregarded entity unless it elects another tax classification.

When should I ask a CPA about Disregarded Entity?

Ask a CPA when the term affects how your business is taxed, how owners are paid, or whether an election could reduce tax.

How is Disregarded Entity different from LLC?

Disregarded Entity means A disregarded entity is a business entity that is separate under state law but ignored as separate from its owner for federal income tax purposes. LLC means An LLC, or limited liability company, is a legal business structure that can be taxed in different ways depending on elections and ownership. The difference is that they apply to different tax, accounting, or business situations and should not be treated as interchangeable.

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