Taxes are an essential part of running a business. And when it comes to tax forms, 1099s are among the most common, but who should receive and file them?
While 1099s are commonly issued to workers and sole proprietors, there are cases in which an LLC should get one as well. This guide explains the various types of 1099s, who should receive them, and how to file them with the Internal Revenue Service (IRS).
What Is a 1099 Form?
Form 1099 is a federal income tax form used to report all non-salary income to the IRS. Non-salary income includes interest income, retirement plan distributions, and proceeds from the sale of personal property.
Businesses file 1099s to report certain payments, such as royalties, rent, and payments to independent contractors. The IRS rule is that annual payments of this nature totaling $600 or more necessitate a 1099.
Payments to corporations generally do not require 1099 forms, which are needed for payments to freelancers, sole proprietorships, partnerships, and limited liability companies (LLCs). Some of the most common 1099 forms are:
- 1099-NEC – reports recurring, non-employee compensation to an independent contractor or self-employed individual
- 1099-MISC – reports miscellaneous income, such as rents, royalty payments, and one-time fees for services; this form was used for independent contractors before 2020
- 1099-INT – reports interest income
- 1099-S – reports real estate transactions
- 1099-DIV – reports dividend payments
These are just a few examples – there are more than 20 1099s. Consult a tax professional if you have questions about which 1099 to file for a particular payment.
When Does an LLC Get 1099?
Whenever a business has paid more than $600 to an LLC, it must issue a 1099 for that business. In this case, the two most common forms are 1099-MISC and 1099-NEC.
While any rent paid to a real estate company would not warrant the filing of 1099, rent payments of $600 or more to an LLC require a 1099-MISC. You must also report royalty payments of $10 or more to an LLC via a 1099-MISC.
A 1099-MISC is also used to report proceeds made from products sold for resale. You must report direct sales of consumer products totaling $5,000 or more. This only applies when products are sold to a buyer for resale outside a retail establishment.
A 1099-NEC should be issued to freelancers and independent contractors to whom you paid $600 or more. If these individuals operate under an LLC, they’ll still need this form to file their tax returns. You might also issue a 1099-NEC to attorneys or accountants for their services.
S-Corp LLCs and 1099s
Some LLC owners decide to operate their business as an S-Corporation for tax purposes. If an LLC operates as an S-Corp, it does not need to receive a 1099 form. However, there are some cases where a form may be required.
You’ll issue 1099 to an LLC taxed as an S-Corp if the payments made are related to medical or healthcare services. You would also give 1099 for gross proceeds paid to an attorney and substitute payments instead of dividends or tax-exempt interest.
The only way to know whether or not an LLC you work with operates as an S-Corp is through a W-9 form. Therefore, it’s a good practice to have all of your vendors complete a Form W-9, so you know their tax classification.
How To Issue 1099 to an LLC
Blank 1099 forms can be downloaded and printed free of charge from the IRS website.
A 1099 form should be completed at the beginning of each calendar year for each individual, partnership, and LLC you made payments to the previous year. After completing the form, you must provide those entities with a copy for their records.
Additionally, a copy of the form must be filed with the IRS. The deadline is usually the start of March for paper forms and the end for electronic filings. However, deadlines and filing requirements can differ depending on which type of 1099 you must file.
Refer to these IRS guidelines for more information on 1099s.
Completing 1099 forms and filing them on time is essential to the continued smooth running of your business. Failure to do so could result in hefty fines and even the closure of your business.
1099 forms are complicated, and it’s important to choose the right ones for the various payments made by your LLC. If in doubt, consult a trusted attorney or tax professional.