Do Sole Proprietors Need to Send 1099? Understanding 1099 Requirements for Sole Proprietors

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Sole proprietors typically do not receive a 1099 form, as it records payments received by someone other than an employer. They should use IRS Form 1099-MISC to report payments incurred during business activities.

When to Issue a 1099

Only your business – including your sole proprietorship – must file a 1099 with the IRS and to each unincorporated business or individual paid over $600 a year. You do not need to issue a form 1099 for any services that were for personal use.

If you backup withhold, you must issue a 1099 regardless of the payment amount. The minimum threshold is normally $600, but if a contractor is subject to backup withholding, you must issue a 1099 even if the amount is under $600.

Reporting and Filing

  • Issue 1099s to single-member LLCs, partnerships, sole proprietors, contractors and freelancers paid over the yearly threshold.
  • S-corporations and C-corporations do not need 1099s.
  • Use Form W-2 to report wages and compensation for employees.
  • If you received a 1099 incorrectly, ask to send a corrected form.

Record Keeping for Sole Proprietors

Sole proprietors must keep their own records because they may not necessarily receive a 1099-NEC. When providing services to nonbusinesses, it is crucial to keep records as they likely won’t get 1099s. You’ll only receive a 1099 if you earn income from a nonemployer source.

Payments and Tax Implications

If your vendor is a corporation, you do not need to issue a 1099. You must provide a 1099 to any vendor who is a sole proprietor paid over $600 a year. A 1-person LLC is, by default, taxed as a sole proprietorship, therefore you’d issue a 1099 unless they are an S-corp.

If you paid an independent contractor more than $600 in a year, you’ll need to complete a 1099-NEC. Payments made by cash transfers with Zelle, Venmo, or CashApp, or if you paid a person via PayPal’s Friends and Family option, also require issuing a 1099-NEC.

Remember, personal payments and payments for services under $600 do not require a 1099. Additionally, freelancers hired through third-party services are also exempt from 1099 reporting.

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