Fact checked for accuracy by Janet Berry-Johnson, CPA.
As your LLC conducts business, it’s important to understand how the filing of 1099 forms works.
In some cases, your LLC must give out 1099 forms to people who provided services for the business.
Unfortunately, many business owners get themselves into hot water with the IRS because they don’t take the time to understand the rules surrounding the 1099 form issue.
That’s a dangerous financial path to go down. The IRS adds penalties that range from $50 to $550 per form that you fail to file.
If the IRS decides that you willfully disregarded your LLC’s 1099 filing requirement, then it can place a $550 fine on your business. Keep in mind that the $550 figure is only the minimum. There isn’t any maximum.
As you can see, it’s in your best interest to understand the relationship between 1099 forms and your LLC taxes. Let’s dive into what you should know.
What is a 1099? Are There Different Types?
Your LLC must issue a 1099 form to anyone it paid $600 or more to in the form of:
- Services
- Rents
- Prizes
- Awards
Types of 1099 Forms
More than 20 different types of 1099 forms exist. Most people talk the most about six of these forms. However, since you’ll likely use only two of these types of 1099 forms, let’s briefly discuss the other four types first.
A 1099-R form gets used when reporting any retirement benefit distributions from entities such as annuities, 401k’s, self-directed IRAs, or pensions.
Banks and other financial entities use Form 1099-DIV to let the IRS know when they distribute dividends to taxpayers. You might use this form if you’re operating a C corporation. It’s used in this case to report any payments made to investors.
The 1099-INT form reports any interest income paid out. Third-Party Network and Payment Transactions get reported on a 1099-K form by card issuers. This form covers payments made via gift cards, debit cards, credit cards, and networks such as PayPal.
1099-NEC and 1099-MISC
Most likely, your LLC will frequently use a 1099-NEC and/or a 1099-MISC form. These forms help report compensation paid out to non-employees of the LLC.
You might hire independent contractors, for example, to design your company website or provide paid ad services for the business. The 1099-NEC form is for Non-Employee Compensation. The 1099-MISC is to report what the IRS calls Miscellaneous Income.
You must issue the 1099-NEC form to anyone your LLC paid $600 or more for services. You don’t need to issue a 1099-NEC for any payments made in your personal life. You only issue the form to people you made payments to during the operation of your business.
If you paid at least $600 out to others for awards, prizes, or rents, then you’ll need to issue a 1099-MISC form to those people.
Who Should Receive a 1099?
To determine who gets a 1099, you need to think through the type of service someone provided to you. The 1099-MISC form gets used for purposes that the newer 1099-NEC does not handle. You’ll give out a 1099-MISC for purposes such as:
- Fishing boat proceeds
- Crop insurance proceeds
- Lawyers
- Medical and health care
- Rents
The 1099-NEC came into existence for the 2020 tax year. It takes the place of what used to get reported on the 1099-MISC form in Box 7. Anyone who isn’t an employee of your LLC should get one from your company. This includes the following:
- Independent contractors
- Third-party accounts
- Janitorial services
- Other service providers
LLCs taxed as sole proprietorships need to receive the 1099-NEC form from your business. Generally speaking, you don’t need to send a 1099 to any LLC that gets taxed as a C corporation or S corporation.
This brings us to an interesting topic about who doesn’t get a 1099-NEC.
You Don’t Need to Issue the 1099-NEC Form to Corporations
Some exceptions do exist when you’re determining who to send a 1099-NEC form to.
You aren’t required to send these forms to S corporations or C corporations. However, still more exceptions come into play under this topic of not sending the 1099-NEC form. You do need to send it out to corporations for situations such as:
- Payments to lawyers
- Health care and medical payments
- Payments made in lieu of tax-exempt interest or dividends
Other Exemptions
You also don’t need to send a 1099-NEC when making rent payments to or through real estate brokers, agents, or property managers. You do need to issue the 1099 form when paying rent directing to a landlord.
Issuing the 1099-NEC form isn’t required when dealing with sellers of storage, freight, merchandise, or other similar items.
Did you pay your vendors more than $600 through PayPal, gift cards, debit cards, credit cards, or other third-party payment portals similar to PayPal?
If you did, then the IRS doesn’t require you to issue the 1099-NEC to independent contractors paid in that manner. Instead, those third-party payment portals or credit card issuers report the payments themselves on Form 1099-K.
Be aware that Venmo doesn’t report payments made via the 1099-K method. You must keep track of all payments made to vendors using Venmo. Make sure you issue a 1099 to any vendor paid more than $600 through Venmo.
What Information and Forms do I Need for a 1099?
Use a W-9 form to help you obtain the information required to fill out a 1099 form. Never agree to pay a vendor until after they fill out a W-9 form for you. Do this even if you don’t expect to pay them $600 or more. This practice eliminates the undesirable situation of hunting down a vendor for their W-9 information after you realize that you did indeed pay them more than $600.
Here’s the information you need from each vendor that your LLC needs to send a 1099 form to:
- Name
- Business name
- Mailing address
- Federal Tax ID number
- Notation about whether they’re a corporation or not
- Signature
- Date
Remember, you usually don’t need to send a 1099 form to a corporation. Finding out this status ahead of time shows you that you don’t need to worry about sending anything out to them the following year.
Where Can I Get Forms 1099 and W-9?
Some Internet advice makes it sound like you simply go to the IRS website, start downloading all the 1099 forms you need, and then send them out to all your independent contractors and other service providers.
It’s not that easy. The Internal Revenue Service prints up the real forms in triplicate.
This means you must either get them by visiting your local post office or by requesting the 1099 forms directly from the IRS. If your post office runs out and you need to order the forms from the IRS, then you’ll pick up the order from a nearby IRS service center.
Why January 31st is an Important Deadline to Remember
You’re required to issue any required 1099 forms (1099-MISC, 1099-NEC, 1099-DIV, for example) to those who earned $600 or more from your LLC by January 31st each year.
The introduction of the 1099-NEC form now adds another layer of complexity to the situation. Your LLC must gather and mail all 1099-NEC forms to the IRS by January 31st as well. You can also file them electronically with the IRS. It’s possible that your state requires you to file the 1099-NEC forms with it.
You can still send other 1099 forms to the IRS in March. Specifically, this means you can send 1099-DIV, 1099-MISC, or 1099-INT forms later than your LLC’s 1099-NEC forms.
Further complicating the matter, you need to know that you can’t mail the IRS your 1099 forms if you’re issuing 250 or more of them. It’s required that you file them electronically in this case. You will face penalties of $100 per return if you don’t file electronically. You can elect to file electronically when issuing less than 250 1099s if you happen to like that method better.
Check Your State Rules
Many states have slightly different 1099 filing requirements than those imposed by the IRS. This is especially true for the newer 1099-NEC form. If you’re issuing any 1099-NEC forms, then make sure you check the deadlines and other rules required by the state where you operate your business.
Here’s a shortlist of some states that require the filing of the 1099-NEC form:
- California
- Delaware
- Kansas
- Montana
- Ohio
- Pennsylvania
- Vermont
- Wisconsin
Again, this represents a partial list. Check with your state to make sure.
The Last Word
Issuing 1099 forms to anyone your LLC pays $600 or more to each year includes many rules and regulations.
You might want to consider using an accountant to help you complete the process correctly. Doing so can help you avoid paying penalties when missing a deadline or filing incorrectly with the IRS. Remember that the IRS can charge you up to $550 in penalties per statement, with no maximum amount.
Filed under: Advice Columns
