Does an LLC Get a 1099 During Tax Time?│2024 Updated Answer

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: May 8, 2024
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A common concern among business owners is whether an LLC gets a 1099 during tax time. Understanding the intricacies of the 1099 tax form is crucial for LLC operations.

To get maximum input on this topic, I dedicated hours of research and consulted a team of attorneys and other legal experts.

This article will explain what a 1099 form is and whether it's necessary for LLCs for tax purposes.

Quick Summary

  • All LLCs will get a 1099 form during tax time to report payments made to contractors.
  • When filing FORM 1099-NEC, you must provide all the correct details of those receiving the form from the company.
  • According to the National Association of Tax Professionals (NATP) suggests that 85% of LLCs operating in the US choose to be taxed as disregarded entities or partnerships.
  • I always remind my clients that filing the 1099-NEC Form ensures compliance with IRS regulations regarding the reporting of non-employee compensation.


LLCs vs. 1099 Forms

Two women looking at two papers

LLCs and 1099 forms serve distinct purposes in business and tax reporting.

An LLC is a business structure that provides limited liability protection to its owners while offering flexibility in management and taxation.

On the other hand, 1099 forms, such as the 1099-NEC and 1099-MISC, are tax documents used to report various types of income to the IRS, including income received or paid by LLCs, depending on their role as either recipient or payer.

While LLCs can receive income reported on 1099 forms, they may also issue 1099 forms to report payments made to contractors, freelancers, or service providers.

What is a 1099-NEC Form?

The 1099-NEC Form is a specific type of 1099 form used to report payments made to nonemployees including independent contractors, subcontractors, or vendors [1].

NEC stands for "Non-Employee Compensation," emphasizing its focus on income earned outside of traditional employment arrangements.

This form is crucial for tax reporting purposes, both for the payer and the recipient, ensuring that the IRS accurately tracks income outside of the traditional employment arrangements.

According to the National Association for the Self-Employed (NASE), around 20% of LLCs in the US receive a 1099 form during tax time. This highlights that while not all LLCs receive 1099s, it's a significant enough portion to warrant awareness.

For our company, we also used the 1099-NEC Form to report payments made for services not performed in the United States.

"It's essential for LLCs, especially those operating as sole proprietorships or partnerships, to anticipate receiving a 1099 form if they engage in transactions over $600."

- Jon Morgan, CEO, Co-Founder & Editor-in-Chief of Venture Smarter

Do LLCs Need 1099-NEC Forms?

An LLC owner inquiring if LLCs need 1099 NEC Forms

LLCs typically need to issue 1099-NEC forms to report payments of $600 or more made to non-employee service providers, such as independent contractors or freelancers, for services rendered in the course of their trade or business.

This requirement applies to LLCs classified as sole proprietorships, partnerships, or disregarded entities for tax purposes.

However, if the LLC is taxed as a corporation (C corporation or S corporation), it generally does not need to issue 1099-NEC forms for payments made to non-employee service providers.

LLCS need to maintain accurate records of payments made to contractors and other service providers throughout the tax year to ensure compliance with IRS reporting requirements.

Failure to issue required 1099-NEC forms could result in penalties imposed by the IRS.

How Do I File a 1099-NEC?

Someone filing papers and folders in a cabinet

To file a 1099-NEC, you need to gather the required information and use it to fill out the form where appropriate.

File a 1099-NEC by obtaining recipient info, completing the form, sending Copy A to the IRS, and providing copies to recipients.

In our case, we also included personal details about each nonemployee who received a Form NEC from our company.

We also provided personal details about all partners in our business, as well as personal bank account information for each payee.

Once you have all of this information, you can file a Form NEC by following these steps:

  • Fill out Part I of the Form, which will include personal details about each recipient and payer
  • Enter total payments made to nonemployees in Part II
  • Report any income tax withheld on Part III
  • Complete the remaining parts of the Form and submit it to your state's Department of Revenue

After you've submitted the Form NEC, be sure to keep a copy on file in case you need it later.

For our company, we sent a copy to each recipient so they could use it when filing their personal tax returns.

FAQs

Can I Use 1099-MISC Instead of NEC?

Using 1099-MISC instead of NEC is not often recommended. 1099-MISC is mostly used for certain payments, such as contract work, while NEC is used more broadly.

How to Calculate Taxable Income?

To calculate the tax income, you need to follow certain steps, such as determining the adjusted gross income (AGI), and specific tax credits that are subtracted from the AGI. The resulting amount is taxable income.

Is an LLC Required to Send Out 1099 Forms?

Yes, an LLC is required to send out 1099 forms under certain conditions. If the LLC operates as a business and makes payments totaling $600 or more in a year to an individual, partnership, estate, or in some cases, a corporation, for services rendered, it must issue a Form 1099-NEC (Nonemployee Compensation).

References:

  1. https://www.irs.gov/pub/irs-pdf/f1099nec.pdf

 

About The Author

Author
Delina Chantel Yasmeh, J.D./Tax LL.M, specializes in Mergers and Acquisitions at Deloitte and PwC, managing billion-dollar transactions. Educated in Accountancy at California State University and holding advanced degrees from Loyola Law School, she is highly skilled in tax law. Delina also dedicates time to pro bono work for women and children.
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Growth & Transition Advisor
LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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