Do LLCs Have to File a 1099?

By Salvatore Jackson

One of the major benefits to organizing as a limited liability company, or LLC, is the advantage of pass-through entity federal taxation. LLC profits are only taxed by the IRS once, on the tax returns of individual LLC members. However, the advantage of pass-through entity federal taxation does not exempt an LLC from the IRS's stringent reporting requirements, and an LLC must use IRS Form 1099 if it pays income to individuals other than wages, salaries and tips.

One of the major benefits to organizing as a limited liability company, or LLC, is the advantage of pass-through entity federal taxation. LLC profits are only taxed by the IRS once, on the tax returns of individual LLC members. However, the advantage of pass-through entity federal taxation does not exempt an LLC from the IRS's stringent reporting requirements, and an LLC must use IRS Form 1099 if it pays income to individuals other than wages, salaries and tips.

Independent Contractors

LLCs are often required to use IRS Form 1099 if they employ independent contractors. According to the IRS, an independent contractor is an individual who performs work for a company that only has the right to direct the result of the work, not the method by which the work is accomplished. For instance, an electrician who is paid a flat fee by a construction company to wire an apartment complex is an independent contractor.

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Using a 1099 Form

The LLC does not directly fill out Form 1099. Instead, it distributes Form 1099 to any qualifying individuals who fill out the form and send it back to the LLC. The LLC then files each Form 1099 with the IRS, and the independent contractor uses Form 1099 to fill out his own tax return. The LLC must file electronically if it has to file more than 250 Form 1099 reports.

Types

The IRS has over 20 different types of Form 1099s. Income that must reported on Form 1099 includes the acquisition of secured property as collateral, proceeds from the cancellation of LLC debt, payments received from the government, advances on health insurance payments, income derived from interest, proceeds from real estate transactions and gambling winnings.

Form 1096

If the LLC has to file fewer than 250 Form 1099 forms, it does not need to file electronically. Instead, the LLC combines all of the filled out Form 1099 forms and submits Form 1096 with the IRS. Form 1096 summarizes all of the various filled out 1099 forms. Additionally, nonprofit organizations must fill out a Form 1096.

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

References

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

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.

How to Report Income as an LLC Member

Unless the members of an LLC elect otherwise, the IRS treats an LLC as a pass-through entity for tax purposes. This means that income for LLCs is reported on the personal tax return of the owner or owners, called members. Multiple member LLCs are taxed as partnerships, with each member's individual tax returns reflecting a share of gains or losses of the partnership. An LLC, however, can also elect to be taxed as a corporation.

How to File Taxes for an LLC Company

How you file taxes for an LLC depends on how the business is treated by the IRS. A single-member LLC is treated as a sole proprietorship, and an LLC with more than one member is treated as a partnership by default, but either type of entity can elect to be taxed as a corporation and, if it qualifies, further choose be taxed as an S Corp.

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