For liability reasons, many individuals opt to incorporate their businesses operations as limited liability companies (“LLCs”). In instances where there is only one member of an LLC, a single-member LLC is formed. These single-member LLCs are separate legal entities from their owners, and are often disregarded as separate from their single members for federal tax purposes. Essentially, those LLCs are taxed as though they are sole proprietorships of their sole members. This is the concept behind a disregarded entity.
However, a single-member LLC is not required to be a disregarded entity. If an individual elects to have his/her LLC taxed as a separate entity, this can be done by filing Form 8832 with the Internal Revenue Service.
A couple important notes:
- A sole proprietorship will never be considered a disregarded entity because it is not a separate entity from the sole proprietor.
- Although a disregarded entity is considered the same entity as its member for tax purposes, it is not considered the same entity for liability purposes.
If you have any questions about incorporating your business operations, feel free to contact our office. At the VC Law Group, we offer flat fees for incorporating new entities, and we provide corporate services for all types of companies. For more information, please contact us at the VC Law Group via phone at (858) 519-7333 or email at info@thevclawgroup.com.