When Should You Send a 1099 to an LLC?

1099 filing deadlines are fast approaching. The IRS requires that you send a 1099 to any independent contractor you paid over $600 to during the 2014 tax year. The deadlines are as follows: 1099 Tax Filing

  • January 31: All 1099s must be received by recipients. There are two exceptions; attorneys and substitute payments in lieu of dividends can be received by February 18.
  • February 28: All 1099-MISC forms must be received by the IRS.

If you received contract services of $600 or higher from an LLC during the year, you may or may not be required to file a 1099, depending on the tax election of the LLC.

What is an LLC?

Limited liability companies (LLCs) are unique entities that are very flexible when it comes to how they are taxed. This is why businesses of all sizes (from single proprietors to multi-national companies) often choose this entity structure. For tax purposes, an LLC can choose how they want to be treated. These options include:

  • Single Member LLC: This election is common among sole business owners. The LLC is generally set up to protect them from personal liability, but the income and expenses of the business still pass through the individual income tax return of the owner. For tax purposes, the IRS regards single member LLCs the same as a sole proprietorship.
  • Partnership LLC: Partnerships are businesses with two or more owners. A partnership LLC is taxed similar to a sole proprietorship; with the income and expenses passing through the tax returns of the owners.
  • Corporation: Larger LLCs may choose to be taxed as corporations (examples include C-Corps or S-Corps), thus allowing them certain tax advantages that may not be available with other entities.

Which LLCs require a 1099-MISC?

If an LLC does not specifically elect to be taxed as a corporation, they will be treated by the IRS as a partnership or sole proprietorship. In addition, all LLCs that are not taxed as corporations and to whom you paid out $600 or more during 2014 must receive a 1099-MISC.

As a practical matter, your business should have a standard policy of collecting W-9 forms with Federal Tax ID Numbers (TINs) from all LLCs when you begin doing business with them. In January, each LLC that received $600 or more from you during the previous year should be sent a 1099-MISC. The only exception is if an owner or officer of the LLC sends you a signed form (for your files) stating that they have elected to be taxed as a corporation.

Filing 1099 forms can be confusing. If you are unsure how to complete them and/or who you need to send them to, speak with a small business accounting firm for guidance. It is best to make sure these forms are filed correctly than risk penalties and fines from the IRS.

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