An LLC is a limited liability company, but how does it file? LLC: W-2 or 1099? In order to answer that question, we will break down what an LLC is, how an LLC is different from other business structures, and how an LLC is taxed.
What is an LLC?
An LLC is a legal entity that can be created to own and operate a business. It has the personal liability protection of a corporation, but it can be taxed as a sole proprietorship or partnership. The benefit of an LLC is that it offers personal asset protection because the owners are not subject to double taxation. However, LLC owners can also choose to be designated as a corporation, and then the entity is taxed as such.
Business Structures and Tax Responsibilities
An LLC is typically owned by an individual. If an LLC is owned by one individual, it is a sole proprietorship. An LLC can also be a partnership. These structures use pass-through taxation, in which the owners themselves are taxed on the LLC’s profits.
A corporation is owned by its shareholders, and it is a taxable entity on its own. Shareholders undergo double taxation. This means that the company’s profits are taxed first, and then the shareholders are taxed again when they report profit shares on their individual tax returns.
LLC: W-2 or 1099
Based on rules provided by the IRS, an LLC is allowed to be taxed as a sole proprietorship, partnership, or corporation. The answer to “LLC: W-2 or 1099?” depends on how you decide to designate the LLC.
In an LLC sole proprietorship, profits are funneled through the owner. The owner reports their profit shares on individual tax forms and returns. If you choose this route of LLC designation and taxation, you will file income tax under a 1040 form for individual tax return and self-employment tax.
If the LLC is a partnership, then you will file a 1065 form and use a Schedule K-1 to report each partner’s pro-rata share of partnership income, credits, and deductions.
If you decide to file your LLC as a corporation, then you will be subject to double taxation. You must file an 8832 form in order for the LLC to be considered a corporation.
If you are responsible for reporting information on employees’ social security, Medicare taxes, and income tax withholding, then you will distribute and file W-2 and W-3 forms. If not, then you will distribute and file 1099 forms.
Whether you choose to file an LLC as a sole proprietorship, partnership, or corporation the AMS W-2 and 1099 Forms Filer can support your tax needs. Our tax software supports the W-2 and 1099 forms that you will need for your employees and makes it easy to upload those documents and keep them secure. You can keep your LLC W-2 or 1099 forms safe and ready for filing with AMS tax software. The E-File Software will automatically file necessary forms to the IRS/SSA.