Do I Need a 1099 for an LLC?

By Tom Streissguth

If you have paid for services by a limited liability company, the IRS may require that you issue a Form 1099 statement to the LLC. The rules for issuing 1099s to LLCs are somewhat complicated, however, and involve determining with exactly what kind of LLC you are dealing. If you are unsure, consult your accountant or tax advisor.

If you have paid for services by a limited liability company, the IRS may require that you issue a Form 1099 statement to the LLC. The rules for issuing 1099s to LLCs are somewhat complicated, however, and involve determining with exactly what kind of LLC you are dealing. If you are unsure, consult your accountant or tax advisor.

The 1099 Information Return

Internal Revenue Service Form 1099 is a statement of money or other benefits paid to an independent contractor, subcontractor, or other business or individual who has performed services for your company, or who is owed money via contract. The IRS classifies the document as an “information return.” The issuer of a 1099 uses it to prove costs and/or expenses to the IRS; the payee uses the 1099 to figure taxable income.

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1099 Classifications

There are many different types of 1099, including the 1099-MISC, used to report royalties, rental income, and other payments; the 1099-DIV for capital gains and dividend distributions; and the 1099-S for real estate transactions.

Issuing Requirements

The IRS requires that you issue 1099s to any independent contractor who provided at least $600 worth of services to your business. Many businesses are unsure of the requirements for issuing 1099s to limited liability companies. The answer depends on how the LLC is treated by the IRS. For federal tax purposes, a limited liability company may elect to be taxed as a sole proprietorship, or Type D or "disregarded entity;" a partnership, or Type P; or a corporation, Type C.

Sole Proprietorships and Partnerships

If your payee is an LLC that is taxed as a sole proprietorship, you must issue the 1099 with certain information needed by the IRS. This includes the name of the sole proprietor, the name of the LLC and the Social Security number of the sole proprietor, which serves him as the tax identification number. If the LLC is taxed as a partnership, then the 1099 must carry the name of the business as well as its employer identification number, or EIN.

Corporations

You do not need to issue the 1099 to an LLC that is classified as a corporation for federal tax purposes. Corporations have strict IRS guidelines and different forms for reporting income that replace the use of a 1099. You may issue the 1099 to a corporation if you wish, but the purpose would only be to simplify your own recordkeeping. You also do not need to issue a 1099 to any LLC structure when you pay transaction costs for merchandise including the item cost, postage charges, delivery costs and storage.

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Is a 1099 Required for an LLC?

References

Related articles

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.

How to Convert From an LLC to a Nonprofit Corporation

A nonprofit corporation is a corporate business structure that has obtained tax-exempt status under Section 501(c) of the Internal Revenue Code. Businesses that qualify under Section 501(c) do not have to pay tax on business income, and are eligible to receive grant money from the government and charitable organizations. Depending on the purpose of your company, it may be advantageous to convert your LLC to a corporation and obtain 501(c) status. This conversion requires filing with both the IRS and the state agency responsible for regulating business organizations.

Sole Proprietorship Business Deductions

Despite the fact that a sole proprietorship isn’t treated as being a separate and distinct entity from its owner, the IRS still allows you as a sole proprietor to take advantage of the same business expense deductions that are available to other business entities, such as a corporation. However, many business deductions have specific requirements that you must satisfy before you can report them on a tax return, so it’s a good idea to familiarize yourself with some of the IRS rules.

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