Form 1099 for LLC: All You Need to Know
Does an LLC need 1099? Well, every kind of business has to file Form 1099s with the IRS (Internal Revenue Service) for the companies and transactions that meet the required criteria. This includes the filing of Form 1099-MISC for payments that have been made for more than $600 and made to non-corporate independent contractors for services offered in that tax year. The limited liability companies that file taxes as a corporation or not have to file the form 1099 for the LLC and get the 1099s for inclusion with their tax returns.
This article would explain all you need to know about the form 1099. Keep reading more!
One of the main difficulties of managing a company includes dealing with many details when filing for your business tax return. This does include filing a lot of forms, including the form 1099 for your LLC. Let us begin by understanding all about the form.
What is form 1099?
The form 1099 for an LLC is a federal income tax form that is used to report money or benefits paid to an independent contractor, an estate, a partnership, a sole proprietor, or an attorney who is not employed by the LLC. Companies have to file this form with the IRS to report these payments. The payments can be for royalties, rents or even just for their services. These forms are used as “information return” by the IRS. It should be noted that the payments made for personal reasons or that is not during the course of regular business cannot be reported on the 1099 for the LLC. Moreover, there are many different parts to this form 1099 for the LLC.
Although there are many parts to this form, the most common 1099 classifications include:
- 1099 MISC is used to report payments to people who provide services to your business
- 1099-DIV is used to report dividends
- 1099-S is used to report real estate transactions
- 1099-INT is used to report interest paid
The 1099 for an LLC has to be filed by the corporation at the end of each calendar year for each LLC, partnership, or individual that has been paid in the previous year. As soon as it has been filled, these forms are given to the payees and the IRS as well. This means that for every payee, two forms are filled – one for the IRS and one for the payee have the same information in both.
When to issue form 1099?
Normally, any time your business buys services, products or pays rent that is more than $600 from a single person or LLC during that calendar year, you will have to file the 1099 for that contractor or vendor. The form 1099 for LLC has to be issued to the taxpayers by January 31st each year. In fact, if you file the form 1099-MISC, you need to file it by 1st March (if filed on paper) and 31st March (if filed online).
As mentioned earlier as well, there are different instances where a business needs to issue a 1099 for the LLC. The most common ones include:
- Rent: If you paid more than $600 as rent to an LLC then you need to file the form. The rent can be for the equipment, machines, or office space. This does not include the amount paid to a real estate agent.
- Royalty payments: If you paid $10 or more in royalties to an LLC on intellectual property like patents, copyrights, or trademarks, you would have to report these payments.
- Nonemployee compensation: If you have made $600 or more to a nonemployee as compensation, you will have to report it. The nonemployee here is an independent contractor or a freelancer who you hired for some specific and limited tasks.
- Products sold for resale: You would have to report the direct sales of $5000 or more of the consumer products if they were sold to a buyer for resale anywhere other than the commercial retail location.
Who gets a 1099 form?
The form 1099 is used for those people who offer goods or services to your company. And the person who gets a 1099 cannot be an employee in the company. In short, these forms are issued to people who are considered to be independent contractors. Different types of workers are often referred to by the classification of their tax status, such as “1099 vendors” or “W-2 employees”.
Form 1099 for LLC
From the above, it is clear that being an LLC, you too might have to file the form 1099. Here is what you need to know:
Does an LLC need a 1099?
Well, the answer to this is sometimes. Nonetheless, if your contractors are set up to work as an LLC, then it becomes a bit more complicated. So, there is no simple answer for “does an LLC get a 1099” Why? Because not all the LLC are set up with the same tax treatment. So, whether you need to issue the form 1099 for our contractor’s LLC depends on how they are taxed.
To find out if you need to give the 1099 to your contractor, you will have to ask them to fill out the IRS form W-9. This is the form “Request for Taxpayer Identification Number and Certification”. Using this form, you will see if you need to give them a 1099 for their LLC or not. In fact, on the W-9 form, your contractors would have to check a box that shows how their business is taxed. The options would include:
- Individual/sole proprietor
- C Corporation
- S Corporation
If the contractor files their taxes as a single-member LLC, then you will have to issue the form 1099 for their LLC. This is because they are considered a “disregarded entity”. Also, the same goes for if the LLC is taxed as a partnership. This is because the income passes through to the LLC owners and the person is taxed.
If the LLC is taxed as a corporation (C corp or S corp), then you do not have to issue the form 1099 for the contractor. So, all the business entities get 1099 unless it is a corporation.
What is Form W-9?
You saw us mention the form W-9 above, right? Well, all the LLCs have to submit the form W-9 to their customers and clients to facilitate the receipt of the 1099. If you were given services by an LLC, you should receive the W-9 form which includes the legal name of the business, its address, tax ID number, how they are taxed and their signature.
But what if the company forgets to give you the W-9 form or selects the wrong option? In this case, it is better to just go ahead and file the 1099 forms for them. You need to be “in the clear” even if it turns out that your contractor did not need the form. Why? Because, if your contractor needed to get a 1099 form but you did not file it, you would be at risk of paying a huge penalty to the IRS. By filing, you are avoiding this penalty even if you are not sure they need it.
1099 for S Corp
As per the IRS instructions, payments to an S corporation do not have to be reported on the 1099 form. So, even if the form 1099 for the S corp is not needed, you will still have to report the payments made to the S corp on your business expenses. The S corp would also have to mention these on their income tax return as well. However, there are some particular payment types made to the S corporations that need to be reported using 1099 for the S corp. These include:
- Medical and health care payments
- Substitute payments in lieu of dividends or tax-exempt interest
- Gross proceeds paid to an attorney
But, if your payments to the S corp do not fall under these, then you do not have to file the 1099 for the S corp.
Filing of Form 1099
Filing the form 1099 is easy but it has to be done before the 31st January of the year after the payments were made. Here is what you need to know.
What are the filing requirements and how to file form 1099?
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.
If you submit an incorrect, incomplete or late 1099-MISC to the IRS, you would be subjected to a penalty of $30 per form within one month of the due date. And this would reach to $60 per form after one month but before August 1st in the same year. If it goes later than August 1st or you do not fill it at all, you will be paying $100 per form not filled. So, it is better to fill the form 1099 for the LLC without fail even if you do not know if the LLC needs it or not.
Figuring out who needs the form 1099 for their LLC doesn’t have to be complicated and with this, you now know the answer to – “does an LLC need a 1099?” All you need is proper planning and some help from your lawyer. If you want to know more about the form 1099 for your LLC, then we too can guide you for it. IncParadise would help in offering all the information you need for the form. In addition to this, we also help in incorporating companies in the USA.
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