Do You 1099 an LLC: Everything You Need to Know
Do you 1099 an LLC? The answer to this question is complex. An LLC, or limited liability company, is considered a pass-through entity for taxation purposes.3 min read
2. The 1099 Information Return
3. 1099 Classifications
4. Issuing Requirements
5. Filing Requirements
7. Form W-9
Updated August 12, 2020:
Do you 1099 an LLC? The answer to this question is complex. An LLC, or limited liability company, is considered a pass-through entity for taxation purposes. Although many believe that the C stands for corporation, an LLC is not necessarily a corporation (though it can be treated as such for tax purposes). An LLC that instead opts to be taxed as a partnership (the default) must receive a 1099-MISC form if it receives more than $600 in payment for services or rent.
A disregarded entity is an LLC that does not elect tax treatment as a corporation. A single-member LLC is automatically considered a disregarded entity and does not need to file a separate tax return. The LLC owner reports business revenue and expenses on his or her personal tax return.
The 1099 Information Return
IRS Form 1099 is used to report money or benefits paid to an independent contractor, a sole proprietor, a partnership, an estate, or an attorney who is not employed by the LLC. This form is considered an information return by the IRS. The entity that issues the 1099 uses it to report costs and expenses for tax purposes, while the entity that receives the 1099 includes it as taxable income. Payments made for personal reasons, and not during the course of regular business, should not be reported on a 1099. A tax attorney can provide more guidance on this matter.
The most common 1099 classifications include:
- 1099-MISC for rental income, royalties, and other miscellaneous payments
- 1099-S for transactions involving real estate
- 1099-DIV used for distributions of capital gains and dividends
Under IRS guidelines, an individual, estate, trust, corporation, or partnership is defined as a person. The structure of a business entity defines whether it should be issued a 1099. An LLC can opt to be treated as either a sole proprietorship (disregarded entity), partnership, or corporation by the IRS for tax purposes.
If you are paying an LLC taxed as a disregarded entity, a 1099 is required. This document must include the sole proprietor's name and Social Security number as well as the name of his or her LLC. If the LLC is taxed as a partnership, the owner must receive a 1099 with the business name and employer identification number (EIN), which serves as a Social Security number for taxation. An LLC that elects corporation tax status does not receive a 1099, unless the payment in question is for health care, the purchase of fish, attorney fees, in lieu of dividends, or a tax-exempt interest payment made by a federal agency.
LLCs do not receive 1099 forms for merchandise transaction costs, including postage, delivery, storage, and the cost of the item itself. Wages do not require a 1099 since they are reported on Form W-2, with the exception of business travel funds, life insurance premiums, and payments made to organizations that are tax-exempt.
You must send eligible recipients their 1099-MISC forms before Jan. 31 of the year after payments were made. You must file copies of all 1099-MISC forms along with Form 1096 by Feb. 28 of the year they were issued, or by March 31 for electronic filing.
If you are an LLC owner, you should expect to receive your 1099 within a week after it was issued. You must report all 1099 income to the IRS or risk underreporting penalties.
If you submit a late, incomplete, or incorrect 1099-MISC to the IRS, you are subject to a penalty of $30 per form within one month of the due date, $60 after one month but before August 1 of the year in question, and $100 after August 1.
LLCs should submit Form W-9 to customers and clients to facilitate the receipt of a 1099 that contains the correct information. You will only receive a 1099 if you provided services above $600. The W-9 includes the legal name of your business, its address, tax ID number, and your signature.
If you need help with issuing or receiving a 1099, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.