LLC Partnerships and 1099-NEC: What You Need to Know

LLC partnership and 1099-nec

An LLC is a business structure that offers protection against personal liabilities. The members of the LLC company will not be held responsible for the debts of the company. The IRS will tax LLC companies on a pass-through basis. All the profits and losses of the company will be filed through the personal tax return of the member. There are three main types of LLCs, namely single-member LLCs, S-corporations, and partnerships. All these types will enjoy the benefits of having their business structure without having to worry about any financial and professional responsibility for debts incurred by the company.

LLCs and 1099-NEC Form

Forming an LLC is a smart choice for many businesses that seek the benefits of a limited liability. However, there will be a lot of paperwork to complete the tax filing process. The business is also expected to file Form 1099-NEC, especially if they are paying non-employee compensation while doing business in the United States. The Internal Revenue Service has laid a series of criteria that businesses have to meet before they get to file Form 1099-NEC. These requirements are as follows,

  • The business should have made payments to non-employee individuals or entities, such as independent contractors or sub-contractors, who have extended their services for the LLC.
  • If the total payments that the LCC has made exceeds $600 during the tax year, then they have to issue Form 1099-NEC.
  • Payments made for professional fees, including accounting and legal fees, and payments made via cash, credit card, and check should be entered in Form 1099-NEC.
  • LLC should file form 1099-NEC with the IRS to report their other miscellaneous payments, related to their services rendered.

To whom should an LLC issue a 1099?

The decision on issuing the 1099 Form or not, depends on the services rendered by the independent contractors for the LLC. If the services rendered by them qualify as non-employee compensating, such as consulting, subcontracting, or freelancing, they will receive Form 1099. LLCs will file Form 1099-NEC for all payments that exceed $600 during the tax year.

If the services rendered by them do not qualify as non-employee compensation, then they will send Form 1099-MISC. This tax Form reports miscellaneous payments that are related to the goods and the services rendered, including payments that exceed $600 during a tax year.

As long as the LLC is filing its tax returns as a single-member LLC or partnership, then it will receive and should return 1099-NEC Tax Forms. If it has contractors working on it and has made more than $600 in services during the year, then it should send this Form to them at the end of the year. LLC can choose to file these forms electronically through IRS-authorized service providers like Tax2efile and avoid the hassles of late filing and errors in the filing.