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Rise Glossary

What is a Disregarded Entity?

A disregarded entity is a term used in the United States for a type of business entity that is not recognized as separate from its owner for tax purposes. The term is most commonly used in reference to single-member limited liability companies (LLCs) and certain other types of business entities that are considered to be disregarded for federal tax purposes.

A disregarded entity is an LLC that has only one owner, also known as a single-member LLC. For federal tax purposes, the IRS treats a single-member LLC as a disregarded entity, which means that the business itself is not considered to be a separate taxpayer from its owner.

In most cases, the income and expenses of a disregarded entity are reported on the owner's individual tax return, rather than on a separate business tax return. However, disregarded entities can also elect to be treated as a corporation for tax purposes by filing Form 8832 with the IRS.

It's important to note that some states have different rules and regulations regarding disregarded entities, and it's important to check with the state regulations before making any decision.

In summary, a disregarded entity is a business structure that is not recognized as a separate taxpayer from its owner for federal tax purposes, but it's important to check the state laws as well.