All businesses and individuals in the United States are required to file an income tax return each year to the Internal Revenue Service (IRS). That said, the type of business structure your small business operates as will determine how you file taxes and which IRS forms you are responsible for filing. A widely recognized IRS form used by many small business owners is the 1099 form. Accordingly, if you are an owner of a recently formed limited liability company who wants to
know whether or not you are required to file a 1099 form for income tax purposes, you’ve come to the right place. We are going to be covering all you need to know about these IRS forms so you can adequately prepare yourself and your business for the next tax year.
Do LLCs get a 1099 form?
Yes, the IRS does provide a form 1099 to an LLC. However, not all LLCs receive one. The Internal Revenue Service (IRS) issues 1099s to different businesses based on income. Let’s take a closer look at some of these different forms below:
1. 1099-INT Form: This is used by a taxpayer to report interest income. Interest income is any monetary amount that is typically paid by investment real estate, mutual fund businesses, banks, and financial institutions to account holders who put money into their investments, savings account, or other interest ventures.
2. 1099-DIV Form: This is used to report shared dividends and distributions. This form is distributed by banks and other financial institutions to investors who obtain dividends and distributions from any form of investment throughout the calendar year. Investors can collect numerous forms depending on how many dividends and distributions they received.
3. 1099-MISC Form: This is used to report miscellaneous income including rent from a real estate company you may own, prize money, award money, payments you have made to a lawyer, money made from fishing boat proceeds, and medical and health care payments.
4. 1099-NEC Form: This is used for nonemployee compensation and reports income. As of 2020, it is used for independent contractors, freelancers, subcontractors, those who make money under self-employment, and those who are considered sole proprietors. These types of non-employees used to report under the 1099-MISC form; however, the IRS has since changed its requirements.
Additionally, your LLC will need to file a 1099-NEC form to report payments if:
- Your business is paying someone who is not an employee.
- You pay a non-employee $600 or more throughout the calendar year.
- You are paying a non-employee as a form of compensation for the services they provide to you.
- You paid these individuals directly from your business account, or you claimed their payment for your individual tax return as a business expense.
What types of LLCs get a 1099 form?
Now that we know the different types of 1099 forms that are available to file during tax time each year, let’s take a closer look at what LLCs would file based on how their business owners have set up and operated their business throughout the year and their specific tax status.
Single-member LLC
A single-member LLC is also known as a disregarded entity. In addition, a freelancer who also establishes a single-member LLC must file their gross proceeds on their individual tax return using a schedule C form. However, business owners who pay a single-member LLC can utilize a MISC form.
Partnerships
Partnerships are also known as LLPs. This business structure is similar to a disregarded entity. However, rather than one person running the company, the business is conducted by two or more people. Partnerships are required to file a 1065 form on their partnership tax returns. The IRS essentially considers partnership tax returns the same as a schedule c form. Your partnership will be provided with a self-employment tax, and you will be required to issue a MISC form.
S Corporation
An S corp is a form of tax election that LLCs can elect to use, also known as a corporate tax. Business owners are therefore considered a shareholder and the IRS will consider you an employee. Thus, an S corporation will not issue a 1099 form.
C Corporation
Just like an S corp, a C corp will not issue a 1099 form with their tax returns.
How to file a 1099 for your LLC
In the event that your LLC pays an independent contractor, or another LLC, $600 or more you will need to file a 1099 form during tax season. To file a 1099 MISC and NEC form, you can download a fillable PDF online that is available on the IRS website, or you can file your form by printing it out and mailing it in. This form must be filed before January 31st each year. Furthermore, you will need to provide the following information when filing your 1099 form:
- Your business name
- The address of your business
- Employer identification number (EIN), which is similar to a social security number for your business.
- The amount your LLC paid.
How to issue a 1099 to an LLC
If your business pays another LLC more than $600 a year for rent or services, you’ll need to issue a 1099 Form to the LLC and file it with the Internal Revenue Service. If you want to issue a 1099 to an LLC you will need to ask for the following information:
- The business name of the LLC.
- The address of the LLC.
- The taxpayer identification number, which you can require by providing the LLC with a form w-9
When it comes to filing taxes for your business, sometimes it can be overwhelming as there are more tasks involved compared to filing your personal tax return. With that said, if you ever find yourself unsure of which forms you should file for your limited liability company or other business structure, you might consider booking an appointment with a certified public accountant (CPA) for more information. They will be able to provide you with a full breakdown of all of the required forms and due dates you need to follow. That way, you can avoid late penalties from the Internal Revenue Service. In the event that you do file your 1099 form late, your limited liability company will receive the following penalties:
- For forms that are filed up to 30 days after January 31st, you will receive a $50 late penalty.
- For forms filed 31 days late all the way through to August 1st you will receive a $100 late penalty.
- 1099 forms that are filed after August 1st each year will receive a $280 late filing fee.
Frequently asked questions
Still have questions about whether or not your limited liability company is required to file a form 1099 for tax purposes? No need to worry. Take a look through our list of common questions for more information.
Do sole proprietors get a 1099?
No, those who work as sole proprietors do not receive a form 1099 from the IRS. This tax form is used by the IRS to record payments received by an individual other than an employer throughout the year. As self-employed individuals, for the most part, do not typically have an employer, these forms are only common among those who are running their own businesses. Usually, sole proprietors record their own business expenses and file their own personal taxes1.
Do S corporations get a 1099?
No, S corporations do not get a 1099. An S corporation is a form of tax election that LLCs use to avoid double taxation and is not a business structure. Business owners are therefore considered a shareholder and the IRS will consider you an employee. Thus rendering S corporations not valid for filing this form.
Do C corporations get a 1099?
No, C corporations do not get a 1099 form. Only limited liability companies that are not taxed as C or S corporations and partnerships will get a 1099 during tax time.
Who is exempt from a 1099?
C corporations and S corporations are exempt from filing forms 1099 with the IRS during tax season. The only businesses who are required to file this form are those who:
- Are paying someone who is not an employee.
- Are paying a non-employee $600 or more throughout the calendar year.
- Are paying a non-employee as a form of compensation for their services.
- Your business pays individuals directly from your business account or you claimed their payment for your individual tax return as a business expense.
References
- 12 Nov. 2021, //squareup.com/us/en/townsquare/how-to-interpret-form-1099-nec#:~:text=Form%201099%2DNEC%20can%20be,or%20a%20tax%20filing%20software.