What Does Disregarded Entity Name Mean?

A disregarded entity is a business structure that is considered separate from its owner for legal liability purposes but is treated as part of the owner for federal income tax purposes. The Internal Revenue Service (IRS) effectively ignores the business’s separate status for income tax reporting, hence the term “disregarded.” This structure simplifies tax filing because the business itself does not file a separate income tax return. The most common example of a disregarded entity is a single-member Limited Liability Company (LLC) that has not elected to be taxed as a corporation.

Understanding the Owner and the Entity

A disregarded entity operates with two distinct identities: the legal owner and the business itself. The owner is the individual or entity the IRS recognizes as the taxpayer, while the business is a separate legal entity established under state law, providing liability protection. This means that while the business can enter into contracts and own property in its own name, the IRS looks past the business entity for income tax matters.

For example, if Jane Doe forms “Doe’s Custom Designs, LLC,” the entity is legally distinct from her for liability purposes. For federal income tax purposes, the IRS disregards the LLC and views Jane as the sole proprietor, treating all LLC income and expenses as her own. This dual nature means the business name is used for operations, but the owner’s name and tax identification number are used for federal income tax reporting.

Completing Tax Forms Correctly

The Form W-9, Request for Taxpayer Identification Number and Certification, is a common document where this distinction becomes important. When a single-member LLC that is a disregarded entity fills out this form, the owner’s individual name must be entered on Line 1, “Name (as shown on your income tax return).” This should be the exact name that appears on the owner’s Form 1040, because the IRS matches the income reported on a 1099 to the owner’s personal tax return.

Line 2 of the W-9 is designated for the “Business name/disregarded entity name, if different from above.” This is where the legal name of the LLC, such as “Doe’s Custom Designs, LLC,” should be written. This approach clarifies both the legal business entity for the payer and the responsible taxpayer for the IRS.

In Part I of the Form W-9, the owner must provide their personal Taxpayer Identification Number. For an individual owner, this is their Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Even if the LLC has obtained its own Employer Identification Number (EIN) for other purposes, the owner’s SSN or ITIN must be used on the W-9 for income reporting. The LLC’s EIN is used for other specific filings, such as payroll taxes on Form 941, but for income reporting, the owner’s TIN links the payments to the correct tax return.

Tax Reporting for a Disregarded Entity

Since a disregarded entity is ignored for federal income tax purposes, it does not file its own income tax return. Instead, all of the business’s income and expenses are reported on the owner’s personal tax return. This pass-through taxation is a defining feature of the structure.

For an individual who owns a single-member LLC, the business’s profit or loss is calculated and reported on Schedule C (Form 1040), Profit or Loss from Business. This schedule is attached to the owner’s personal Form 1040. On Schedule C, the owner details the gross income received by the business and subtracts all deductible business expenses to arrive at a net profit or loss.

The net profit or loss from Schedule C is then carried over to Schedule 1 (Form 1040), Additional Income and Adjustments to Income, and combined with the owner’s other personal income sources. The business owner is also responsible for paying self-employment taxes, covering Social Security and Medicare, on the net earnings from the business, which is calculated using Schedule SE (Form 1040).