What Is a Disregarded Entity?

A disregarded entity is a company that is not separate from its sole owner for federal tax purposes, meaning that the company taxes are paid as part of the federal income tax return of the owner.

What Are the Advantages of a Disregarded Entity?

  • Simpler tax filing;
  • Status only valid at the federal level, allowing the company to keep its liability advantages at the provincial or state level;
  • Not subject to double taxation.

Due to their complexity, laws regarding disregarded entities should always be discussed with qualified professionals.

Which Types of Businesses Can Be Treated As Disregarded Entities?

The most common type of business that qualifies as a disregarded entity is the single-member limited liability corporation (SMLLC). The sole owner can be an individual or corporation.

Do Disregarded Entities Have to File Tax Returns?

Tax returns must not be filed for disregarded entities as the taxes relating to a disregarded entity are to be taken into account through the personal tax return of the owner. Disregarded entities are still responsible for paying employment taxes.

Regulations regarding disregarded entities should always be discussed with a professional.

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