Disregarded entities

A disregarded entity is an LLC that the IRS ignores for income tax purposes and looks straight through to its owner. The income is taxed as if the owner earned it directly. It is the default status of every single-member LLC, and it is the simplest tax treatment in the code. It is also more nuanced than the word “disregarded” suggests, because the entity is only disregarded for some taxes, not all of them, and that gap catches people.

What disregarded actually means

By default, a single-member LLC is a disregarded entity. The LLC is fully real at the state level, it can own property, sign contracts, and shield your personal assets, but for federal income tax the IRS pretends it is not there. If you own it as an individual, the LLC’s income and expenses go straight onto your personal return: Schedule C if it runs an active business, Schedule E if it holds rental real estate. The LLC files no separate federal income tax return. One owner, one return, one layer of tax.

The activity, not the entity, decides the form. The same disregarded LLC reports on Schedule C if it is an operating business and Schedule E if it is a rental. This is why the same structure serves a consultant and a landlord and taxes them differently: the disregarded status is identical, the activity inside it is not.

A disregarded entity is real at the state level but invisible for federal income tax, so its income flows straight to the owner’s return with no separate filing.

The word is misleading: it is disregarded only for income tax

Here is the part that trips owners up, and it is a genuine trap. “Disregarded” applies to income tax. For several other taxes, the single-member LLC is treated as a separate entity, with its own name and its own EIN.

If the LLC has employees, it is a separate entity for employment tax and files payroll returns under its own EIN, not the owner’s Social Security number. For certain federal excise taxes, likewise separate. And a foreign-owned single-member LLC, even though disregarded for income tax, must obtain an EIN and file Form 5472 with a pro forma return, a reporting requirement that blindsides many non-US owners. So “the IRS disregards my LLC” is only half true, and the other half, employment tax, excise tax, and certain information returns, treats it as very much its own entity.

A single-member LLC is disregarded only for income tax; for employment tax, some excise taxes, and Form 5472 reporting it is a separate entity with its own EIN.

Beyond the single-member LLC

The concept is broader than LLCs, and two other disregarded arrangements matter for real estate. A grantor trust is disregarded for income tax: the grantor is treated as the owner and reports the trust’s income on their own return, which is exactly why grantor trusts pair so cleanly with real estate holding and estate planning, developed on the trusts and LLCs page. And a qualified subchapter S subsidiary is a disregarded subsidiary of an S-corp. The through-line is the same: the entity exists legally but folds into its owner for income tax.

When you would leave disregarded status behind

A disregarded single-member LLC is not locked in. The owner can elect corporate treatment, filing to be taxed as a C-corp or, more commonly in the tax-planning world, an S-corp, which changes the entity from disregarded to a separate taxpayer. For rental real estate, that election is usually a mistake for the reasons on the S-corp election page. But the option exists, and it is the fork where “disregarded” ends and a genuinely separate tax entity begins.

The bottom line

• A single-member LLC is a disregarded entity by default: real at the state level, invisible for federal income tax.
• Its income flows to the owner’s return, Schedule C for a business, Schedule E for a rental.
• It is disregarded only for income tax; employment tax, some excise taxes, and Form 5472 treat it as separate.
• Grantor trusts and QSubs are other disregarded arrangements built on the same look-through idea.
• Electing corporate or S-corp treatment ends disregarded status, which is usually wrong for rentals.

For the entity choice this underlies, read single-member vs multi-member, the tax view. For the election that ends it, see S-corp election for real estate. For the full picture, start at the entity and LLC tax strategies hub.

Last verified August 2026.