Disregarded Entity - Single Member LLC

The term "disregarded entity" as it is associated with Single Member LLCs, carries with it a lot of confusion.  In simplistic terms I'm going to try and clear up some of this confusion.....

Single Member LLCs are disregarded entities which means they are:

1. An entity where the business, as far as legal liability is concerned, is separate from it's owner AND


2. An entity where the business, as far as federal employment taxes are concerned, is responsible for filing and paying all employment taxes on wages paid to its employees AND


3. An entity where the business, as far as federal income taxes are concerned, are reported with the owner on Form 1040, usually Schedule C.

LLCs are entities created under state law the purpose of which is to provide liability protection to it's owners.  In the case where there is only one owner, we refer to this type of business as a "Single Member LLC".

When "Single Member LLCs" hires employees the LLC must obtain an EIN for the LLC and file federal payroll tax returns (Forms 940, 941, W-2s) using the name and EIN of the LLC.

Single Member LLCs do not have a separate tax return to file for federal income tax purposes.  For federal income tax purposes Single Member LLCs report their income and expenses on Form 1040 of the single member owner, using Schedule C.

Tax law can change daily, please talk to your tax adviser before making decisions that will affect your taxes.