Are you “disregarded”?

A recent topic of internet chatter has been the IRS designation “disregarded entity.” While the term may feel a little off-putting at first, being a disregarded entity is not a bad thing, and the IRS does not think any less of you. It simply means this is the way your business is perceived by the IRS.

Those of you who are running a business as a single member LLC may be able to file as a disregarded entity. This filing status allows you to claim your business in much the same way as you would if you were a sole proprietor, meaning that you do not have to file a business return. However, you can elect to file as a corporation.

The reasoning behind this is that the owner of a single member LLC will be tightly intertwined with their business income and, from the view of the IRS, the business will disregarded as being separate from its owner. One caveat is that for employment tax and certain excise tax, a single member LLC is considered a separate entity. Find out more here.