Do Sole Proprietors Give Themselves a 1099?

by James Rada, Jr.; Updated September 26, 2017

Form 1099 and all its variations are filed to report certain types of income. Form 1099-MISC is given to independent contractors to show income they were paid. A Form 1099-INT reports interest paid to an account. The reported income will also generally not have had payroll taxes deducted from it.

Sole Proprietorships

This is the simplest type of business to start. It can be a one-person operation or a larger business that is entirely owned by a single individual. You don’t need to fill out forms to open a sole proprietorship. Though it is simple, it carries a greater risk than other types of business structures because the sole proprietor and business are legally recognized as one and the same.

Who Issues 1099s?

If a business pays a person or another business more than $600 in a calendar year, a 1099 must be issued. On the flip side, if a sole proprietorship business does more than $600 of business with a particular company, the sole proprietorship will receive a 1099 at the end of the year. This is required whether the $600 was earned in a lump sum or over the course of the year.

When Sole Proprietors Receive 1099s

Sole proprietorship businesses receive 1099s only if the business is paid more than $600 during the year by another business. Since a business owner does not do business with himself, no 1099 is required. Even if the owner was set up as an employee (which can’t be done with a sole proprietorship), the owner would be issued a W-2 form at the end of the year and not a 1099 form.

Why Doesn’t a Sole Proprietor Issue 1099 to Self?

A sole proprietorship does not have to issue a 1099 to the business owner. The IRS recognizes the sole proprietorship business and owner as the same person. Income earned by a sole proprietorship is reported on a Schedule C, which is part of the business owner’s Form 1040. In this way, all profit earned by the business becomes taxable income.

Penalties

The penalty for failing to file a Form 1099 can be up to half of the amount paid the service, according to the IRS. This is a penalty that falls on the business that paid for the service. If a business fails to report income from a 1099 on its tax forms, the business will pay the penalty for underreporting of income.

About the Author

James Rada, Jr. was a newspaper reporter for eight years and earned 23 awards from the Maryland Delaware D.C. Press Association, Associated Press, Society of Professional Journalists, Maryland State Teachers’ Association and CNHI. He also worked for 12 years as a marketing communications writer, earning a Print Copywriter of the Year Award from the Utah Ad Federation. He holds a Bachelor of Arts in communications.

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