Am I Required to Fill Out a W-9 as a Sole Proprietor?

By Kay Lee

As the tax filing deadline looms each year, taxpayers begin to compile the relevant information to file income taxes. In addition to filing personal income taxes, business owners and employers must make sure to file their business tax returns and provide paperwork to employees, contractors and other individuals as required by the IRS. A sole proprietorship and its owner are treated as a single entity under tax law, and often must fill out a Form W-9.

As the tax filing deadline looms each year, taxpayers begin to compile the relevant information to file income taxes. In addition to filing personal income taxes, business owners and employers must make sure to file their business tax returns and provide paperwork to employees, contractors and other individuals as required by the IRS. A sole proprietorship and its owner are treated as a single entity under tax law, and often must fill out a Form W-9.

Sole Proprietorship

A sole proprietor is the owner of a sole proprietorship, which is a business entity formed with little formality. Sole proprietors are not considered independent of their sole proprietorship for tax purposes; this means that the sole proprietor will include business expenses and income on his personal income taxes. The IRS essentially treats sole proprietors as self-employed individuals for tax purposes.

Ready to start your LLC? Start an LLC Online Now

IRS Protocol

When a business hires and pays a sole proprietor, such as a computer repairman, the business must report the payment to the IRS to help ensure that the sole proprietor pays taxes on the funds. In order to report this information and determine whether to withhold taxes from payments, the hiring business asks the sole proprietor to complete IRS Form W-9. This form asks for the mailing address and taxpayer identification number of the hired party. The hiring party is required by law to provide the IRS and the hired party with a Form 1099 if the payment for the services exceeds a certain threshold.

Purpose of W-9

The purpose of a Form W-9 is to provide the IRS with a checks and balances system; thereby, allowing the IRS to verify whether individuals or business entities are reporting the correct sources of income. Forms W-9 are used to certify the accuracy of the taxpayer identification number. Also, the W-9 allows the hiring party to determine whether the individual or entity being hired is subject to backup withholding, which is the mandatory withholding of taxes from certain payments.

Sole Proprietor W-9 Requirements

Since a sole proprietor and his sole proprietorship are considered a single entity for tax purposes, the sole proprietor must fill out Forms W-9 for business transactions. The hiring party is required to request the information and the sole proprietor must fill out the Form W-9 accurately, under penalties of perjury. The sole proprietor will designate that it is a sole proprietor and accordingly, any income paid from that business relationship will be reported to the IRS provided it exceeds certain thresholds.

Ready to start your LLC? Start an LLC Online Now
How to File a W-9 for an LLC

References

Related articles

IRS LLC Filing Requirements

The U.S. Internal Revenue Code does not recognize the limited liability company, or LLC, as a distinct taxable entity. An LLC can be taxed as a sole proprietorship, a partnership, a C corporation or an S corporation, depending on a number of factors. LLCs have significant flexibility to choose their own tax treatments.

What Are All the IRS Filings for an S Corp?

A "C" corporation is a standard corporation, while an "S" corporation has elected a special tax status with the IRS, allowing it to be taxed as a flow-through entity that passes its income through to its shareholders instead of filing a return in its own name and paying taxes at the corporate rate. To ensure that the IRS receives taxes on that income, however, it strictly limits the number and type of shareholders that an S corporation can have. The IRS filings to elect, maintain and terminate S corporation status are specific because the IRS requires proof that the corporation and its shareholders are eligible for S corporation tax treatment.

How do I Report Income From an LLC?

A limited liability company, or LLC, is a “hybrid” type of business organization that combines the limited liability benefits of a corporation with the pass-through taxation and relaxed reporting requirements of a partnership. The LLC is a creation of state legislatures, and the Internal Revenue Service does not explicitly recognize LLC’s for the purposes of federal taxation. Depending on the status of your company, the IRS classifies LLC’s as a sole proprietorship, partnership or corporation. Understanding how your LLC is classified for federal taxation purposes is important to knowing how to report your LLC’s income.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Fill Out a W9 for a Sole Proprietor

If you own and operate a business and choose to run it as a sole proprietorship rather than creating a separate ...

Is a 1099 Required for an LLC?

A limited liability company, or LLC, is a relatively modern business organization that provides business owners with a ...

Do LLCs Have to File a 1099?

One of the major benefits to organizing as a limited liability company, or LLC, is the advantage of pass-through entity ...

Can an Income Be Transferred From a 1099 to an S-Corp?

The IRS takes a stern view on what is known as assignment of income. There are long-standing legal doctrines that ...

Browse by category