What is a Disregarded entity?
A disregarded entity is a business structure that the IRS does not recognize as separate from its owner for federal income tax purposes. The most common example is a single-member LLC that has not elected to be taxed as a corporation. Because the IRS treats the owner and the entity as a single taxpayer, income and expenses flow directly to the owner's personal return. This structure disqualifies the owner from strategies requiring an arm's-length transaction between the business and the individual, including the Augusta rule. Electing S Corporation or corporate status removes disregarded status.
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