1099 Workers and Sole Proprietors
A 1099 worker often pays less taxes compared to other business structures. As a sole proprietor, you have the ability to deduct business costs like health insurance but are personally liable if sued.
LLC vs. Sole Proprietorship
An LLC protects your personal assets, like your home or car if sued, while a sole proprietor does not. Forming an LLC can offer tax benefits, as it can choose to be taxed as a partnership or corporation. However, it’s essential to hire an advisor to understand the complexities involved legally.
Paying Taxes as an LLC
Paying yourself as a 1099 contractor through your LLC can help you avoid payroll taxes. However, an LLC must apply for Form W-9 to later file IRS Form 1099-MISC. Additionally, the IRS assesses partnership tax returns like Schedule C single-member LLCs. You’ll generally pay 15.30% tax on Form 1099 income.
Single Member LLC and Tax Compliance
Can a single member LLC have 1099 employees? When a single-member LLC is taxed as a Sole Proprietorship or a multi-member LLC as a Partnership, and any business pays the LLC $600 or more for services, a 1099-NEC form is required. However, LLCs taxed as S corporations do not receive a 1099 form.
How To Pay Yourself in a Single Member LLC
Here’s how to fill out a W-9 for a disregarded entity LLC:
- Enter your full name and LLC name.
- Indicate you are a single-member LLC.
- Provide LLC information.
- Confirm and sign the form.
- Submit the completed form.
A single-member LLC that is self-employed must pay self-employment tax on business earnings. Most SMLLCs need an Employer ID Number (EIN) for federal tax purposes, even without employees.
Issuing and Receiving 1099s
To 1099 yourself, you must be a single-member LLC or sole proprietor. LLC members can take loans from the business without filing a 1099. Moreover, an LLC member taxed as a corporation can receive W-2 income with taxes withheld. Speak with a CPA if a multi-member LLC can use a 1099 to pay members.
If you must issue 1099s as a business owner, or in cases such as failure to file one for an LLC or LLP, seeking assistance from an accountant is recommended.