Disregarded Entity
Disregarded Entity (Form 1040)
U.S. Federal Tax Compliance for Single-Member Entities
At SDG Accountant, our U.S. tax specialists help business owners and entrepreneurs understand and comply with U.S. tax obligations for Disregarded Entities — most commonly single-member limited liability companies (LLCs). Whether your business is based in Toronto, Canada, or elsewhere, we guide you through complex IRS requirements with precision and clarity. A Disregarded Entity is a business structure that, for U.S. federal tax purposes, is “disregarded” as separate from its owner. This means the entity itself doesn’t file a separate income tax return. Instead, the owner reports business income or loss on their own U.S. tax return or returns. Because of this unique structure, reporting obligations often intersect with both U.S. and Canadian tax systems — leading to compliance challenges without professional guidance.What Is a Disregarded Entity?
A Disregarded Entity is most commonly:
A single-member LLC owned by an individual
A single-member LLC owned by a corporation
Other qualifying entities where the IRS treats the entity as part of the owner for tax purposes
For U.S. federal tax purposes, the entity does not pay income tax or file its own federal corporate tax return. Instead:
- If owned by an individual → income is reported on the owner’s Form 1040 (Schedule C)
- If owned by a corporation → income is reported on the corporation’s tax return
However, disregarded entities may still have filing requirements, such as:
Electing to be treated as a corporation under IRS rules
Filing employment tax returns if there are employees
Filing information returns (e.g., Form 5472 for foreign owner reporting)
Complying with U.S. state tax obligations (state income, franchise, sales, etc.)
SDG Accountant helps you determine the correct filings for your specific situation.
Why Disregarded Entity Tax Guidance Matters
Although the IRS disregards the entity for federal income tax purposes, a disregarded entity:
May be treated differently for state tax purposes
Could trigger information reporting requirements
May have payroll tax obligations
Can face penalties if reporting is missed
Needs accurate cross-border planning if the owner lives in Canada
Without careful planning, U.S. tax rules can create exposure, unnecessary penalties, and compliance risk.
At SDG Accountant, our team of Enrolled Agents and U.S. tax professionals ensures your obligations are met efficiently and correctly.
Serving Toronto & Cross-Border Business Owners
Many entrepreneurs in Toronto and across Canada operate U.S. disregarded entities or hold interests in them as part of cross-border business activity.
We assist:
Canadian residents owning single-member U.S. LLCs
U.S. LLCs managed from Toronto
Foreign owners with U.S. business activity
Businesses with employees or sales in U.S. states
Entities with reporting obligations to U.S. tax authorities
Our tax advisors provide solutions tailored to your business structure and goals — helping you avoid pitfalls in both U.S. and Canadian tax systems.
