Last updated: November 1, 2026 · By the Flex Tax and Consulting Group team
What is a disregarded entity? It is a business entity, most often a single-member LLC, that the IRS ignores for federal income tax purposes. The business still exists legally, but its income and expenses are reported on the owner’s own tax return. For an individual owner, that usually means Schedule C, E or F of Form 1040. A disregarded entity is not ignored for everything, though: it is treated as a separate entity for employment taxes and certain excise taxes, and California still requires it to file its own return and pay the annual LLC tax.
Key takeaways
- A single-member LLC is a disregarded entity by default for federal income tax, unless it elects to be taxed as a corporation.
- The owner reports the business on their own return (Schedule C, E or F for an individual) and generally pays self-employment tax on business profits.
- For payroll and certain excise taxes, the LLC is treated as separate and must use its own name and EIN.
- An LLC can change its tax classification with Form 8832 (corporation) or Form 2553 (S corporation).
- In California, a single-member LLC must still file Form 568 and pay the $800 annual tax, plus an LLC fee once California income reaches $250,000.
- A foreign-owned U.S. disregarded entity must file Form 5472 with a pro forma Form 1120.
What is a disregarded entity for tax purposes?
“Disregarded entity” is a federal income tax term. Under the IRS entity classification rules, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it elects otherwise. In plain terms, the IRS looks straight through the LLC to the person or company that owns it.
This only affects how income tax is reported. It doesn’t change the LLC’s legal status under state law. The LLC can still hold a bank account, sign contracts and own property in its own name. Being disregarded for tax and being a separate company legally are two different questions.
Who is usually a disregarded entity:
- A single-member LLC owned by an individual. The most common case.
- A single-member LLC owned by a corporation or partnership. It is treated as a division or branch of its owner, and its activity goes on the owner’s return.
An LLC with two or more members is a partnership by default, not a disregarded entity. There is one exception for spouses: in a community property state such as California, a married couple who wholly own an LLC as community property may choose to treat it as either a partnership or a disregarded entity (IRS Publication 3402). California’s FTB also lets a married couple count as one owner.
How a disregarded entity is taxed
Because the IRS ignores the LLC for income tax, there is no separate federal income tax return for it. The owner reports everything instead:
| Type of activity | Where an individual owner reports it |
|---|---|
| Business or profession (consulting, services, sales) | Schedule C (Form 1040) |
| Rental real estate | Schedule E (Form 1040) |
| Farming | Schedule F (Form 1040) |
| Owned by a corporation or partnership | On the owner’s own return, as a division of the owner |
If an individual owner runs a trade or business through the LLC, the IRS says the owner is subject to self-employment tax on net earnings the same way a sole proprietor is. Profits are taxed whether or not you take the money out of the business.
What a disregarded entity is not disregarded for
The “disregarded” label applies to income tax only. The IRS treats a single-member LLC as a separate entity for:
- Employment taxes. If the LLC pays wages, it must report and pay payroll taxes under its own name and employer identification number (EIN), not the owner’s Social Security number.
- Certain excise taxes. The LLC uses its own name and EIN on excise forms such as Form 720 and Form 2290.
Do you need an EIN? According to the IRS, a disregarded single-member LLC with no employees and no excise tax liability doesn’t need one; it uses the owner’s name and taxpayer ID for federal tax purposes. It will need an EIN if it has employees or an excise tax obligation. Many LLCs get one anyway because banks or state agencies ask for it.
Disregarded entity vs. S corporation vs. C corporation
An LLC isn’t stuck with the default. It can elect a different federal tax classification:
| Classification | How you get it | Federal income tax return |
|---|---|---|
| Disregarded entity | Default for a single-member LLC | None for the LLC; reported on the owner’s return |
| C corporation | File Form 8832 and elect corporate classification | Form 1120 |
| S corporation | Timely file Form 2553 (treated as also electing corporate status) | Form 1120-S |
A few timing rules from the IRS instructions for Form 8832:
- An election can’t take effect more than 75 days before the date it is filed, or more than 12 months after it is filed. Late election relief may be available in some cases.
- After a classification change by election, an entity generally can’t change again by election for 60 months.
- An LLC that timely files Form 2553 to be taxed as an S corporation is treated as having elected corporate status, so it generally doesn’t need to file Form 8832 as well.
Whether a different classification makes sense depends on your income, payroll, state taxes and plans for the business. That is a conversation to have with a tax professional before filing anything. For one real-world look at the S corporation question, see our S corp case study for high-income professionals.
California rules for single-member LLCs
California also treats a single-member LLC as a disregarded entity for income tax, but it does not ignore the LLC completely:
- Form 568 is still required. The FTB requires a single-member LLC to file Form 568 even though it is disregarded.
- $800 annual tax. An LLC doing business in California owes the $800 annual tax, paid with Form FTB 3522 by the 15th day of the 4th month of its tax year.
- LLC fee. If total California annual income is $250,000 or more, the LLC also owes a fee that rises with income ($900 at $250,000 to $499,999, up to $11,790 at $5 million and over for 2025).
- Narrow first-year exception. The annual tax and fee don’t apply only if the LLC did no business in California and its tax year was 15 days or fewer.
Missing Form 568 or the $800 payment is a common problem for new single-member LLC owners who assume “disregarded” means nothing to file.
Foreign-owned disregarded entities: Form 5472
If a foreign person or company owns a U.S. single-member LLC, the IRS treats that LLC as a corporation for the limited purpose of the Form 5472 reporting rules. The LLC must file Form 5472 attached to a pro forma Form 1120, even though it owes no U.S. income tax return of its own. The IRS penalty for failing to file Form 5472 when due is $25,000. Foreign owners with other U.S. or foreign entities may also have related filings, such as Form 5471.
Disregarded entity FAQs
Is a single-member LLC a disregarded entity?
Yes, by default. A single-member LLC is disregarded for federal income tax unless it elects to be taxed as a corporation with Form 8832 or as an S corporation with Form 2553.
Does a disregarded entity file its own tax return?
Not a federal income tax return. The owner reports the LLC’s income and expenses on their own return. The LLC may still file payroll and excise tax returns under its own EIN, and in California it files Form 568.
Does a disregarded entity need its own EIN?
Only in some cases. The IRS says a disregarded LLC with no employees and no excise tax liability can use the owner’s name and taxpayer ID. It needs an EIN if it has employees or excise tax obligations.
Can a disregarded entity elect S corporation status?
Yes. A single-member LLC can be taxed as an S corporation by timely filing Form 2553, if it meets the S corporation requirements. It then files Form 1120-S instead of reporting on the owner’s Schedule C.
Does California treat a single-member LLC as disregarded?
Yes for income tax, but the LLC still files Form 568, pays the $800 annual tax and, if California income is $250,000 or more, pays the LLC fee.
Related reading
- Case Study: Does an S Corp Actually Save Taxes If You Have a Full-Time Job?
- Business Formation Services
- Business Tax Services
- Form 5471 Schedule G, Schedule P and Filing Requirements
Sources
Last reviewed November 1, 2026.
- IRS: Single member limited liability companies
- IRS: Limited liability company (LLC)
- IRS Publication 3402, Taxation of Limited Liability Companies
- IRS: Form 8832, Entity Classification Election, and instructions
- IRS: Instructions for Form 5472
- California FTB: Single member LLC
- California FTB: 2025 Limited Liability Company Tax Booklet (Form 568)
Setting up an LLC or wondering how yours should be taxed?
This article provides general information only and is not tax or legal advice. Tax outcomes depend on individual facts and circumstances. Contact us about your specific situation.