Disregarded Entity

A disregarded entity is a business entity that is separate from its owner but which chooses to be disregarded as separate from the business owner for federal tax purposes. The IRS says,

"If a “disregarded entity” is owned by an individual, it is treated as a sole proprietor. If the “disregarded entity” is owned any any other entity, it is treated as a branch or division of its owner."

A sole proprietorship is not a disregarded entity, because the business is not separate from the owner.

Liability Issues for a Disregarded Entity
A disregarded entity is considered the same entity as the owner for tax purposes, but not for liability purposes. For more information on this subject, read this article in which attorney Robert Warwick discusses disregarded entity tax and liability issues.