What Is a Disregarded Entity?

A disregarded entity is a business structure the IRS ignores for federal income tax purposes — the business's income, deductions, and credits flow directly to the owner's personal tax return as if the business didn't exist as a separate entity. The most common example is a single-member LLC: by default, the IRS treats it exactly like a sole proprietorship, so all activity is reported on Schedule C of the owner's personal return. This doesn't mean the LLC has no legal value — it still provides personal liability protection from business debts and lawsuits — it just means there's no separate business-level income tax. A single-member LLC can elect to be treated as a corporation by filing Form 8832, which changes the tax treatment from disregarded entity to a separate taxable entity. Multi-member LLCs are not disregarded entities; they're treated as partnerships by default.