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.

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