Do LLC's Get 1099's?

The good 'ole Limited Liability Company. This has become the great big band-aid answer for the question "what's the best way to start my business?". Many professionals urge business owners to start an LLC as a freelancer or independent contractor rather than sticking with sole proprietorships or C corporations. This is mostly due to the great legal protections you can receive by having the shell of an LLC. However, I know what you are thinking to yourself. How is it different than any other entity you could create? I'll go over a few key differences in this article and eventually get around to the question we all came here to get answered: do LLC's get form 1099-misc?

The LLC: Basics

I'm going to give you the Cliff Notes version here because let's face it, no one reads the actual book these days. An LLC is a type of business structure. It is a way to shield yourself from liability in the course of your trade or business. A corporation does the same thing. They have different legal protections and the extent of your legal protections depends on the state that you incorporate your LLC in. Now the Internal Revenue Service's mission in life is to complicate everything to the highest possible extent, especially for small business taxpayers. So there are different ways that an LLC can be taxed. Since I am the opposite of the IRS and enjoy trying to simplify things let's go over some of the different ways you can be taxed as an LLC:

Single Member LLC

If context clues aren't your forte then I will even further explain what this means: you are the only person who owns the LLC. If you want to sound impressive around some friends while sipping from a glass with the pinky extended you can also refer to a single-member LLC as a "disregarded entity", they are one and the same. If your LLC is a single-member LLC (or disregarded entity for you fancy folk) you get the legal shield of the LLC business structure but unfortunately Uncle Sam is going to want a big share of your wallet.

Single-member LLC's are required to report their business activities on Form Schedule C on an individual's personal tax return. When an activity is reported on Schedule C any net income is subject to self-employment tax. So if you like paying a ton of taxes this is probably the way for you to go! You might ask "how is this any different than being a sole proprietor?". Remember that the LLC is widely regarded as a business entity for legal purposes, so you enjoy less legal risk than operating as a sole proprietor.

Partnership

If you co-own the limited liability company with someone else then you now have a partnership. When you have a partnership you then are required to file another IRS form. You will file Form 1065, or a partnership tax return. On there you will have your gross proceeds and gross expenses and any net income will pass through to you and any partners you may have. That income will be linked to your social security number and the IRS will expect to see it on your tax return. Partnership income usually bears the same treatment as if you were reporting the business activities on your Schedule C, so it usually is also subject to self-employment tax. The IRS allows this to happen as a way to divide income from a business activity amongst more than one taxpayer.

S Corporation

As if you weren't confused enough already. Yes, the LLC can also be an s corporation for tax purposes. This business entity is widely regarded as one of the best business structures for income tax purposes. Essentially, if you set it up properly and are well-read in the IRS rules and regulations you can shave off some of your self-employment tax liability that you would have with a partnership, single-member LLC, or a sole proprietorship. So if you like keeping money in your pocket and spending your own money rather than having the government spend it on maintaining vacant land or something like that then this might be something worth looking into! It involves filing an extra form with the Internal Revenue Service (shocker, another tax form) and paying yourself as if you were an employee. I don't want to cannonball face-first into that topic, but I wanted to give you an overview to see how flexible an LLC business structure can be for you.

Read more here on if you should form an S-Corp or LLC for independent contractors.

Form 1099-MISC

Finally... The moment we have all been waiting for... Do LLC's receive Form 1099-MISC for nonemployee compensation? It depends. Yes, the most common answer relating to all tax law questions. IT DEPENDS. As if life wasn't hard enough figuring out how to make your independent contractor life better you are tasked with learning even more about dry tax law. Luckily for you, I have digested all this very dry stuff. I am attempting to serve it to you less boring and more concise manner. So LLC's can and will receive 1099's when they are either a single-member LLC or taxed as a partnership.

An LLC will not receive a 1099 if taxed as an s-corporation. The funny part about this is that if you are the one issuing a Form 1099-MISC you will have no way to tell if the vendor you are issuing to is an s-corporation since the business name will only include LLC in the title. What you will most likely have to do is when you request a Form W-9 you could ask if they are an s corporation. If so, you are off the hook and don't have to file anything for them!

I hope I was able to steer you through the absolute bitter reality of what an LLC can be and what the 1099 rules are with them. Honestly, if you can just remember the most important points of the article, my job here is done. The important points of course being that disregarded entity is a cool phrase, the Internal Revenue Service has no soul, and that only s-corporation LLC's shouldn't receive 1099's. If you have any additional questions I advise you to contact a tax professional for additional help and guidance.

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Robby Nelson

Robby Nelson

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When not hanging out with his high profile friends like Gandhi or Batman, Robby enjoys spending time with his wife and children. He can sneeze with his eyes open, has won two lifetime achievement awards, and has visited every country; three of which haven't been discovered yet. He is also a Certified Public Accountant and assists clients with a wide variety of accounting and tax issues.

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Note: at Keeper Tax, we're on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please reach out via email if you have questions.