Any business making payments for goods, services or the labor of independent contractors should be familiar with IRS Form 1099-MISC. The IRS relies on this form to establish a record of taxable income, and requires you to issue the form to certain payees whether your business is a sole proprietorship, a corporation or a limited liability company.
The 1099 Family
There are 1099s for reporting interest payments (the 1099-INT), for reporting written-off debt (the 1099-C), and for reporting payments through a third-party network such as PayPal of more than $20,000 (the 1099-K). In the family of 1099 forms, the 1099-MISC is probably the most widely used. Any business, including an LLC, must issue a 1099 to any independent contractor who is paid more than $600. The payee keeps the 1099 for his records, while reporting the income on his tax return; the business files the form with the IRS.
Who Must Issue
The IRS is not singling out LLCs or for-profit businesses with its reporting requirements; non-profits and tax-exempt organizations must use the 1099 as well. The reporting rule covers any kind of business and exempts payments made for personal goods or services. Thus, if you write a check for repairs on your family minivan that run more than $600, you don't need to issue a 1099 to the shop. However, an LLC would need to issue a 1099 for work of more than $600 on company cars.
The 1099-MISC covers a multitude of vendor/client transactions. Your wholesaling operation must issue a 1099 on sales of more than $5,000 of goods to customers for resale. Your publishing company must send out a 1099 to authors who've earned more than $10 in royalties. Your grocery store must report payments for fish, although not for other merchandise. The IRS also requires LLCs to report, via the 1099, attorney's fees of more than $600, any rental payments to property owners, or lease payments for the use of coin-operated amusements.
Employee Vs. Independent Contractor
An LLC does not report wages to employees with a 1099; that's the job of a W-2. The IRS definition of employee is vital for any business owner to understand. If you have control over working hours and location, reimburse the worker for expenses, pay health and other benefits, and generally set the specific terms for how the work is performed, you have an employee, for whom you must withhold income taxes and pay a share of payroll taxes. If not, you are engaging an independent contractor, who by definition is earning self-employment income reportable on a 1099.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.