What is LLC Disregarded Entity Election?

What is LLC Disregarded Entity Election?

Disregarded Entity Election for Florida LLCs

In Florida, many entrepreneurs are confused by the idea of “Disregarded Entity Election.” Basically, it’s a status determining how your business is taxed. For information on selecting the right entity for your business, you can read more here.

What is LLC Disregarded Entity Election?

LLCs are popular because they can choose if they would like to be taxed as sole proprietorships, partnerships, or corporations. By default, then the IRS taxes single-member LLCs like sole proprietorships.  In a sole proprietorship, there is no legal distinction between you and your business. This means that the owner reports their business income and expenses on their personal tax return. The IRS will ignore the LLC’s status as a business entity. This is what makes it a “disregarded entity.”

It’s important to remember that a single-member LLC’s disregarded entity status only applies to taxation. The business is still separate from its owner for purposes of liability protection and employment taxes.

More on LLC taxes in Florida can be found here.

What Else Should I Know?

It’s much less complicated to obtain Disregarded Entity Election for an LLC than a corporation. The IRS requires no extra paperwork. Additionally, you report the business’s income and expenses on your personal return instead of on a separate filing.

LLCs making disregarded entity elections pay Medicare and Social Security taxes on their net income. Also known as “self-employment taxes,” they can be avoided by having an LLC that is taxed like a corporation. A corporate structure could also be beneficial if your LLC’s net income is greater than your own salary.

Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling (727) 279-5037.

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