Do I issue a 1099 to an LLC?
It depends on how the LLC is classified for tax purposes. An LLC by itself is just a legal structure. The IRS doesn’t care about the LLC label. It cares about how that LLC elected to be taxed, and that determines whether you need to send a 1099.
If the LLC is a single-member LLC (taxed as a sole proprietorship) or a multi-member LLC (taxed as a partnership), you are required to issue a 1099-NEC when you pay them $600 or more during the year for services. These are the most common situations you’ll run into, especially when paying subcontractors in the trades.
If the LLC elected to be taxed as an S-corporation or C-corporation, you generally do not need to issue a 1099. There are a few exceptions, like payments for legal services or medical/healthcare payments, but for most construction and service work those exceptions won’t apply.
The way you figure this out before it becomes a problem is by collecting a W-9 from every subcontractor or vendor before you pay them. The W-9 has a section where the payee checks their federal tax classification. That checkbox tells you exactly how their LLC is taxed and whether a 1099 is required. Make it a rule that no one gets paid until you have their W-9 on file. Chasing down W-9s in January when 1099s are due is frustrating and often unsuccessful.
The $600 threshold applies per vendor per calendar year. If you paid an LLC $400 for one job and $300 for another, that’s $700 total and you owe them a 1099. Full-service bookkeeping that tracks vendor payments throughout the year makes this simple because you already have the totals when filing season arrives. Without that tracking, you’re digging through bank statements trying to add up payments to each sub.
Penalties for not filing 1099s range from $60 to $310 per form depending on how late you file, and they can add up fast if you have multiple subs. The IRS has gotten more aggressive about matching 1099 data, so skipping them creates risk for both you and the person you paid.
For trades and construction businesses that rely heavily on subcontractors, 1099 compliance is not optional. It’s one of the areas the IRS looks at closely during audits. Good bookkeeping for trades businesses includes keeping W-9s organized and tracking sub payments by vendor so that filing 1099s in January is a straightforward task instead of a last-minute scramble.
One more thing worth noting. Cash payments don’t exempt you from 1099 requirements. If you paid a sub $600 or more in cash for the year, you still owe them a 1099-NEC. The reporting requirement is based on the total amount paid, not the payment method.
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