LLC Owned by Married Couple Generally Not Treated as Disregarded Entity

If an LLC is owned solely by a married couple who file their taxes jointly, the question may arise whether the husband and wife can be counted as one member allowing the company to be treated as a disregarded entity?  This would be beneficial because it would eliminate the need for separate federal and state tax returns for the company.  While there are instances where a husband and wife are counted as one (i.e. in S-corporations), this rule is not applicable towards Nebraska LLC’s.  An LLC solely owned by a married couple will by default be taxed as a partnership and the company will be required to file separate federal and state income tax returns.

© 2012 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

What is a Disregarded Entity?

If you have formed a limited liability company (“LLC”) by yourself, you may have heard it referred to as a “disregarded entity.”  A disregarded entity is the default tax classification for a single-member LLC.

Disregarded entities are generally treated as nonexistent for tax purposes.  That is, all income, deductions, gains, losses, and credits are reported on the owner’s income tax return.  If the owner is an individual, it is reported on Schedule C of Form 1040 and no separate federal or Nebraska state return is required.  If the disregarded entity has employees, however, then the disregarded entity is responsible for filing and paying all employment taxes on wages paid to employees.

While disregarded entities are largely nonexistent for tax purposes, they remain separate entities for legal purposes.  This means the entity can own real estate, personal property, and the owner will generally have protection from personal liability for business debts.

Overall, a disregarded entity can minimize required tax filings while still enjoying the benefits of legal separation.

© 2012 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com