Unincorporated LLCs

Disregarded Entity

When a single person elects to use an LLC as his form of business and does not elect to be treated as a corporation, the LLC is a “disregarded entity”. And, the LLC’s activities should be reflected on its owner’s federal tax return. The income or loss from that LLC would be reported on the owner’s personal tax return as detailed on schedules “C”, “E” or “F”. The owner would however still be called a member as he would be in an incorporated LLC.

LLCs were created by state statute. Consequently, the IRS does not recognize unincorporated LLCs as anything other than proprietorships or partnership. The organizer(s) had to elect to be treated as a corporation when the company was formed. An LLC with only one member is treated as an entity disregarded as separate from its owner. Unincorporated LLCs are treated as separate entities for purposes of employment tax and certain excise taxes at the federal level. Similar rules apply to partnerships that have elected to be treated as LLCs. Each state has its own rules for the treatment of limited liability entities. You should refer to the IRS website for a complete understanding of how unincorporated LLC are treated for federal tax purposes

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