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What is the true meaning of a “disregarded entity?

All entities, be it a corporation or an LLC, whether or not they have done any business in or outside the US, must file a tax return every year with the IRS.

Most of the other registered agents are advertising that a non-US citizen need not file a tax return for an LLC because it is considered disregarded entity" and you do not have to pay US taxes. These websites are not giving you the full understanding of what the definition for a "disregarded entity" is.

Do not be fooled by what other websites are telling you about not having to pay US taxes, and specifically that an LLC is a “disregarded entity”. It is a misleading term and does not mean that you "do not have to pay taxes". Furthermore, if your company does not file a tax return it will be severely penalized with penalties and interest if a tax return is not filed annually with the IRS.

Although the individual states recognize an LLC as a legitimate entity for a single member, for income tax purposes, the IRS considers a single member LLC as a "disregarded entity". So what exactly is the definition and true meaning of a "disregarded entity"?

This is taken directly from the www.irs.gov site: (and can be somewhat confusing)

If the LLC you are forming has only one member, in the eyes of the IRS you are not considered a partnership so cannot file a Partnership Return.

If the LLC you are forming has only one member, it is considered a Single-Member Limited Liability Company (LLC) for tax purposes and will be classified as a "disregarded entity" for the purposes of filing a federal tax return.

What this means is:

§ . . . . . . income and expenses must be reported on Form 1040 (U.S. Individual Income Tax Return), Schedule C, E, or F, or

If you do not wish to accept the default classification of disregarded entity and do not want to file a Schedule C on your tax return, you can

§ File Form 8832 (Entity Classification Election) to elect corporate status, or
§ File Form 2553 (Election by a Small Business Corporation) to elect S corporation status. (reserved for US citizens filing taxes)

Again, Single-member LLCs may not file a partnership return.

International Clients Not Filing a US Tax Return

International clients are led to believe that a "disregarded entity" means they do not have to file a tax return. Not True. Since the international client does not file a personal tax return then how will the LLC file their taxes? They do not have the option of filing on a Schedule "C" (not personal tax return).

For IRS tax purposes, the LLC must be converted to a "C" Corporation by filing an IRS form 8832. Note: As an additional note an LLC in Delaware pays $250.00 each year when they file their annual report every June, vs. a "C" corporation with 1500 shares authorized to be issued at no par value would only pay $125.00.