A disregarded entity refers to a business entity with only one owner that is not recognized for tax purposes. In such cases, no tax return need be filed for the disregarded entity. The individual or corporate owner reports all income of the disregarded entity on its own individual or corporate tax return.
For example, a single-member LLC ( “SMLLC”) is considered to be a disregarded entity. For federal and state tax purposes, the sole member of a SMLLC disregards the separate legal status of the SMLLC otherwise in force under state law.
As the result of being “disregarded,” the SMLLC does not file a separate tax return. Rather, its income and loss is reported on the tax return filed by the single member:
A SMLLC is not the only entity treated as a disregarded entity. Two other corporate forms are also disregarded:
However, SMLLCs are by far the most common disregarded entity currently in use.
So, basically for federal tax purposes, the SMLLC does not exist. All its assets and liabilities are treated as owned by the single owner corporation. It is sometimes referred to as a “tax nothing.”
Even though a disregarded entity’s tax status is transparent for federal tax purposes, it is not transparent for state law purposes. Remember, an LLC is a corporation under state law and its shareholders enjoy certain legal protections. For example, an owner of an SMLLC is not personally liable for the debts and obligations of the entity.
Note, however, since the entity is disregarded, the owner is generally treated as the employer of the disregarded entity employees for employment tax purposes.
Finally, keep in mind that some states, like Pennsylvania, require that state tax returns be filed for these disregarded entities.
For further details on disregarded entities or how this tax strategy may fit into your business operations, please contact our offices.
Hiring Steven was quite possibly the best decision of my life! Steven took the time to hear every single one of my concerns and address them in an extremely clear, concise and thorough manner. He guided me through the notoriously complicated and stressful process of probate with the utmost of compassion and dedication. Thank you Steven!
I highly recommend Steven J. Fromm for all your estate and tax planning needs. He has the most complete and thorough knowledge of current as well as pending federal, state, and local tax codes of any professional that I have ever been involved with. His ability to totally sort out your current financial condition and relate it to a plan to minimize your tax liability and allow you to sleep at night is without equal. He is professional, timely, creative, and an advocate for your needs, whether its personal or business. You can be assured that you will be well taken care of, with cutting edge/ sound financial and tax advice by Steven J. Fromm.
I have always found Steve to be very responsive, accurate and creative in legal matters presented to him. He demonstrates a good business sense. We have collaborated on several highly technical issues over the years. I look forward to our continuing relationship.
Steven has been instrumental in helping my partner and I to create a secure and satisfying estate plan, which meets or exceeds all of our wishes and contains contingencies for everything from medical issues to wealth management and living wills. In this process, Steven has also become a friend. If you need Estate Planning, Tax Advice, a Will or a trust, etc., we highly recommend Steven Fromm, Esquire. He will listen and be sensitive to your unique situation.
Steve is an excellent attorney who has provided help for my family personally for business, tax, and other services for many years. He is extremely knowledgeable and thorough, and is extremely good at explaining legal concepts to me in clear terms understandable to a non-attorney. It is difficult to pick only three attributes above, since Steve’s work meets most if not all of the attributes above.
Steve is an excellent corporate attorney who has a deep understanding of corporate law, taxes and estate planning. He’s been extremely helpful to me in keeping my many companies and business ventures organized, focused and squeaky clean. He’s very strong in estate planning and wealth preservation as well. Finally, his follow through is air tight and utterly dependable.
Steven is a trusted adviser. We depend on him for so many things. He is patient, listens to our needs and makes excellent suggestions. He is extremely talented. We value his advice and have recommended him unhesitatingly to friends and family.
Steve Fromm is a superb lawyer and I highly recommend him! After a terrible experience with a previous lawyer concerning an estate administration, I entered his office feeling very deflated, confused and discouraged. However, I left his office feeling enthusiastic and eager to get down to business. My situation was very unique, I needed his expertise for an array of things and Steve was able to address all of my needs. With a limited timeframe and an extreme amount of obstacles to overcome he worked meticulously, diligently and accomplished extraordinary results. His professionalism is incomparable and I am forever grateful.