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Disregarded Entity LLC

Disregarded Entity LLC

Disregarded Entity LLC

As LLCs started to become more and more critical, IRS decided to adopt an already-existing tax category to LLCs instead of creating a new one. The most significant advantage of LLCs is that the owners can also show loss/profit of the company in their tax returns.

Disregarded Entity

Disregarded Entity business type is independent of its owner to some extent for specific purposes. However, it is entirely integrated to its owner when it comes to “taxes.”  Sole proprietorships and partnerships are examples of this business types because their owners show the profit of their company in their tax returns. Businesses are usually not “disregarded” (except for S Corporations and REITs).

LLC Classification

According to IRS, an LLC is either a “sole proprietorship” or a partnership, which means most of them are, for tax purposes, disregarded entities. However, they can choose to be classified as a company by filing Form-8832.

 

As of 2009, LLCs are also responsible for some federal taxes such as alcohol, firearms, and tobacco. Therefore, if LLCs are accountable for these taxes, they need an EIN (Employer Identification Number) and a bank account.

 

Self-Employment

Another consequence of being a Disregarded LLC is that you will probably be responsible for self-employment tax. If you get more than $400 from your disregarded LLC, you have to pay your self-employment tax by filling out Form-1040.

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