Disregarded Entity

A disregarded entity is a US tax classification that treats your single-member LLC as invisible to the IRS, taxing you personally on all business income instead. For European founders, it's the simplest default setup when you form a US LLC alone.

What Is a Disregarded Entity?

A disregarded entity is a business structure the US Internal Revenue Service (IRS) ignores for tax purposes. If you own a single-member LLC (one person, one company), the IRS disregards the LLC itself and taxes you directly on all income and expenses as if you were self-employed.

In plain terms: your LLC exists on paper and in your bank account, but the IRS sees only you. You report business profit or loss on your personal tax return (Schedule C if you are a US resident with an SSN, or Form 1040-NR Schedule C-EZ if you are a non-resident alien with an ITIN). No separate entity tax return is required.

How It Works for Non-US Founders

When you, a European founder, form a US LLC as the sole member, it defaults to disregarded entity status. This means:

• No Form 1120-S or Form 1120 (corporate tax forms) required
• You file one personal return reporting the LLC income
• Self-employment tax (Social Security and Medicare equivalent) applies if you have US business income
• Your US business EIN and ITIN (Individual Taxpayer Identification Number) link directly to your personal tax profile

You do not need a US visa, SSN, or residency to obtain an ITIN or form an LLC. Founders Credit handles the LLC formation, EIN application via Form SS-4, and ITIN request through Form W-7 or IRS procedures, so you can operate legally from Europe.

Simple Example

You are a German app developer. You form a US LLC in Wyoming called "DevCo LLC" with yourself as the sole member. You obtain an ITIN (say 9XX-XX-XXXX) and EIN for the LLC. In Year 1, your LLC generates 120,000 USD in revenue and 45,000 USD in expenses (hosting, software, contract labor). Your net profit is 75,000 USD.

Under disregarded entity rules, you report that 75,000 USD profit on your personal income tax return (Form 1040-NR, Schedule C). You pay US self-employment tax on that 75,000 USD. You do not file a separate return for the LLC itself. The LLC is, in effect, invisible to the IRS, yet it holds a bank account, credit cards, and legal liability protection in your name.

Why Disregarded Entity Matters for Your US Credit Journey

Most US business banks and card issuers (Mercury, Wise Business, Relay) accept LLCs registered as disregarded entities. The simplicity is an advantage: one tax identification number (your ITIN), one annual return, no extra filings.

However, if you later add a second owner or elect S-Corp taxation, the disregarded status ends. You would then file a separate tax return (Form 1120-S). This is a key decision point: disregarded entities suit solo founders; growing teams or high-profit businesses often benefit from pass-through structures (S-Corp or partnership).

Key Takeaway

A disregarded entity is the IRS's way of saying "your single-member LLC does not exist as a taxable unit." You run the business, hold assets in the LLC name, build US credit, and pay tax as an individual. It is the lowest-friction US business structure for a solo European founder. Founders Credit guides you through LLC formation, ITIN and EIN setup, and disregarded entity tax compliance, so you can focus on growing your business.

Frequently asked questions