For the owner of a limited liability corporation, or LLC, deciphering who is to receive a 1099 form can be confusing. Issuing a 1099 to a supplier, employee or other stakeholder who should not receive one can cause frustration and trigger tax problems for the recipient. Conversely, failing to issue a 1099 can lead to severe Internal Revenue Service (IRS) penalties and fines--including the possible loss of all tax deductions related to the 1099.
The IRS has created many different 1099 forms, covering a wide range of transactions. These range from Form 1099-A (Acquisition or Abandonment of Secured Property) to Form 1099-SA (Distributions from an HSA, Archer MSA, or Medicare Advantage MSA and HSA, Archer MSA, or Medicare Advantage MSA). Most of these 1099 forms deal with a specific type or class of transaction and many are rarely used. When business owners discuss Form 1099, they typically mean Form 1099-Misc (Miscellaneous Income).
Form 1099-Misc is the form typically used by businesses to report the qualified payment of suppliers, vendors and contractors. The form is also used to report business rents, royalties, non-employee compensation and federal income tax withholding. The IRS uses this form to determine that income recipients are properly reporting revenue.
In general, Form 1099-Misc must be issued to any business or person to whom your LLC made payments totaling $600 or more for rents, services, prizes or awards or other payments of income. In addition, the form must be issued to anyone to whom the LLC made royalty payments of $10 or more. The LLC must issue Form 1099-Misc to any business or person from whom it purchased $5,000 or more of goods or services for resale when the goods or services were purchased somewhere other than a permanent retail establishment.
There are numerous general exceptions to the filing of Form 1099-Misc. This form is used only by businesses; individuals making personal payments do not need to file this form. The form does not need to be issued to corporations. As many LLCs make most of their purchases from corporations, this eliminates a large number of income recipients. Finally, employee wages and standard reimbursements are excepted from the filing of Form 1099-Misc.
The Patient Protection and Affordable Care Act of 2010 has codified significantly stricter filing requirements for Form 1099-Misc. Numerous critics have lobbied for the repeal of these requirements, claiming they are burdensome and costly for businesses. The new requirements would take effect with 1099-Misc forms filed in 2013.
There are numerous exceptions to these rules; an LLC owner should consult a tax adviser with specific questions.
Michael Dreiser started writing professionally in 2010. He is a certified public accountant with experience working for a large New York City accountancy and expertise in areas ranging from private equity taxation to investment management. He holds a Master of Business Administration in international finance from l’École Nationale des Ponts et Chaussées in Paris.