As a small business owner, an LLC offers significant legal protection. With minimal paperwork and administration, you have an independent business entity to operate from. But unraveling your relationship with the LLC can be more confusing come tax season. Even with pass-through taxation, the same IRS rules apply. That means any company that paid your LLC more than $600 yearly will send a 1099. Likewise, if you pay LLCs more than $600 annually, you’re responsible for issuing a 1099. Read on to answer the question, “Do I send 1099 to LLC?”
Understanding 1099 Forms
IRS Form 1099 is a tax form that documents different types of payments made to an individual or business that isn’t your employer. With Form 1099, the payer fills in the details and sends a copy to the freelancer or service provider and the IRS.
There are many different types of 1099 forms:
- 1099-MISC: For miscellaneous income. This is the most common Form 1099 and the focus of this article.
- 1099-NEC: For nonemployee compensation. If you are self-employed, a gig worker, or a freelancer, you’ll receive this form.
- 1099-K: Income you received via third-party payment processing platforms like Venmo or Paypal. Learn more about cash app taxes.
- 1099-INT: Used for the interest you earned on savings.
- 1099-DIV: For income earned from investment dividends and distributions.
- 1099-B: Income from the sale of securities at a brokerage or exchange.
Other less common 1099 forms you might encounter for specific situations:
In this article, we’ll focus on the 1099-MISC form sent to single-member and multi-member LLCs.
Do I Need to Send a 1099-MISC to an LLC?
Generally, you’ll need to send a 1099-MISC for any freelancer or LLC business for whom you pay more than $600 annually.
If you pay an LLC more than $600 a year for its services, you’ll need to issue a 1099 Form to the LLC and file it with the IRS. Issuing a 1099 is an essential part of business accounting and tax preparation. Instances where you need to send a 1099-MISC to an LLC include:
Payments for Services
If you pay an independent contractor or freelancer for work, and the total amount paid is more than $600, you’ll need to send them a 1099-MISC.
- If you hire someone with an LLC to perform landscaping and yard work on your business property and pay them more than $600 a year, you’ll need to issue a 1099.
- If you hire an LLC to redo your business website and optimize for SEO, costing $1,000, you’ll need to issue a 1099.
- If you work with a marketer who bills through an LLC to create Facebook ads and pay them $1,500 over the year, you’ll need to issue a 1099 to the LLC.
Landlords will get 1099-MISC forms for rent if they collect at least $600 from commercial tenants and get paid through check, ACH, or cash. That means you must issue a 1099 if you’re paying commercial rent. Or, if you’re collecting rent, you can expect to receive a 1099.
Products Sold for Resale
According to the IRS, you will also use Form 1099-MISC to report direct sales of at least $5,000 of consumer products to a buyer for resale. This is applicable for sales anywhere other than a permanent retail establishment.
Commissions or Referral Fees
If you pay a referrer or commissions (including affiliate advertising) more than $600 in a year, you’ll need to collect a W-9 form from them and issue a 1099. On the other hand, if your LLC works on referrals or commissions, you can expect to receive a 1099 form from the clients that pay you more than $600 a year.
Royalty payments are tax reportable and are reported on IRS Form 1099-MISC. If you receive royalty payments, you’ll receive IRS Form 1099-MISC, which will also be reported directly to the IRS.
What Are the Exceptions to Sending a 1099 to an LLC?
You do not need to send a 1099-MISC form to an LLC if your payment was made for merchandise, goods, or freight. You don’t need to send a 1099 form to a corporation, including C corporations or S corporations. Finally, if you paid less than $600 over a year, it’s not necessary to send a 1099 form.
How to Send 1099 Form to an LLC?
If you need to send a 1099 Form to an LLC, here are the steps:
1. Gather Necessary Information from the LLC
Necessary information from the LLC includes its legal name, address, and taxpayer identification number (TIN). The TIN is typically its Employer Identification Number (EIN), but it can also be the LLC’s Social Security Number (SSN) if they are a single-member LLC. To gather this information, you’ll send them IRS Form W-9 to return to you.
2. Complete the 1099 Form Accurately
Be sure to accurately report the income and include any necessary descriptions or codes for the payment type. You’ll want to double-check that all information is included and you don’t leave any required information blank. You can download Form 1099 directly from the IRS.
3. Send the 1099 Form to the IRS and LLC
Next, you’ll need to send Form 1099-MISC to the IRS and the LLC by January 31 of the following year. For example, for 2023, you must send Form 1099-MISC by January 31, 2024. This can be sent electronically or by mail to the LLC, but it must be postmarked or sent by the due date of January 31.
For the IRS, you can file Form 1099 electronically through the IRS Filing Information Returns Electronically (FIRE) system or by mail. If mailing, use the address specified in the instructions for the specific form.
What Happens if You Don’t Send 1099 Form to an LLC?
Failure to send the required 1099-MISC form to an LLC may result in penalties imposed by the IRS. These penalties vary based on the duration of the delay and can be quite significant. To avoid penalties and more paperwork later on, ensure accurate tracking of accounts and that you send all required IRS forms before the deadline.
Organizing to Send 1099s
Sending Form 1099 to an LLC is a necessary part of running a business. While it seems like extra work, with the right planning and support, it can be simple. doola bookkeeping services can help simplify accounting. It’s the ultimate bookkeeping software for founders. With doola, get stress-free bookkeeping, easily plan to send 1099s, and spend more time focusing on what really matters. Or, check out doola’s total compliance bundle!
What if I made a mistake on the 1099 form?
If you made a mistake on a 1099 form, you can amend it and send the amended 1099-MISC to the IRS. You must check the box at the top to confirm it’s amended.
What if the LLC refuses to provide its tax identification number?
If an LLC refuses to provide its tax identification number, the LLC can be fined by the IRS. To protect your business, you should immediately begin a backup withholding of 28% on any reportable payments made to the payee and remit this amount to the IRS.
Can I use a substitute form instead of the official 1099-MISC form?
You can use the Form 1099-NEC instead of Form 1099-MISC for reporting non-employee income.
Is it necessary to send a copy of the 1099 form to the state tax authorities?
Whether you’re required to send form 1099 to the state tax authorities depends on the state. Some states require you to send them a copy of the 1099 forms while others don’t.
Do I need to send a 1099 form to an LLC if they were paid via credit card?
If you paid an LLC by credit card, you must not file Form 1099. Instead, the filing requirement is on the payment processor.