The US Internal Revenue Service (IRS) requires companies to issue various income returns (Form 1099-MISC) to individuals and companies, including limited liability companies (LLC), who pay if the agreement between the company and the service provider is certain requirements (instructions for 1099 -MISC). Do you 1099 an LLC?
1099 Defined
Form 1099 is a type of information refund that the IRS requires payers to provide as evidence that they have incurred certain business expenses in a given tax year. The person or entity that receives 1099 uses the form when submitting the annual tax declaration as proof that he has earned income in that tax year.
Because the form includes both the payer’s employer identification number (EIN) and the payee’s EIN or social security number, the IRS can match the forms with two taxpayers as part of overall efforts to enforce income reporting and paying taxes.
Issuing requirements
Pursuant to the IRS guidelines, a person, property, trust, corporation or partnership is defined as a person. The structure of the business entity determines whether 1099 should be issued. LLC may be treated by the IRS as a sole proprietorship (omitted entity), a partnership or partnership for tax purposes.
If you pay a LLC company taxed as a skipped entity, 1099 is required. This document must include the name of the sole owner and social security number, as well as the name of his or her LLC. If an LLC is taxed as a partnership, the owner must receive 1099 with the company name and employer identification number (EIN), which serves as a social security number for tax purposes. LLC, which chooses corporate income tax status, does not receive 1099, unless the payment in question relates to health care, purchase of fish, attorney’s fees instead of dividends or exemption from interest paid by a federal agency.
Who receives the 1099-MISC form?
The contractor receives a copy to his registers, and the IRS also receives a copy – either in electronic or paper form (plus form 1096, a transfer form only used for submission to the IRS via worm mail).
Most corporations do not receive 1099-MISC
Another important point to note: you do not need to send 1099-MISC to corporations. This includes S-Corporations and C-Corporations – they also do not receive 1099 1099-MISC. 1099-MISC should be sent to a sole proprietorship limited liability company (or LLC) or a sole proprietorship Ltd. But not LLC, which is treated as S-Corporation or C-Corporation. Here’s another way to remember:
- Only owner = send 1099-MISC
- Contractor or partnership with no legal personality / LLP = send 1099-MISC
- LLC that chooses treatment as S-Corporation or C-Corporation = DO NOT send 1099-MISC
Unfortunately, there are some exceptions to this rule. 1099-MISC should be issued for:
- Lawyer’s fees, even if the lawyer is registered
- Gross receipts paid to a lawyer (for example in legal settlements)
- Payments to profit providers
