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LLC W2 or 1099: Tax Implications (Explained)

Max Smith

Reading Time: 4 minutes

Do you pay yourself as an employee or contractor in your LLC? The payment or employment status of your LLC often influences the taxation amount. However, you may get confused about applying for an LLC W2 or 1099 to enjoy less taxation pressure. 

In this article, you will find information regarding Form 1099 & Form W-2 and their effects on taxation. So, without further ado, let’s go!

Before getting a Form 1099, find out if you are worthy of a Form 1099. A non-employment income that has crossed the level of $600 needs a Form 1099 to pay tax. 

There are also different types of 1099 forms. For instance, Form 1099, 1099-MISC, 1099-INT, 1099-DIV, etc. So consult an expert service provider to identify which 1099 form you need.

Now, it’s time to collect the 1099 form. But where will you find it?

First, visit the official IRS website or e-file provider website. You will find a pdf file and download it. That’s the 1099 form!!!!

Secondly, you can also order a 1099 form. Again, the IRS will provide you with a 1099 form if you call 800-TAX-FORM (800-282-3676). But don’t forget to collect Form 1096 along with Form 1099. It’s essential!

Form 1096 includes the summary of Form 1099. You must fill out both of these forms and mail them together. Furthermore, you need both of these forms together for mailing only. 

Lastly, remember to make several copies to keep on record or show to the officials for future assistance. 

Moreover, the deadline is January 31st, and if you are late, you pay a penalty! 

So get your Form 1099, like other LLC owners, for tax advantages. In most cases, LLC owners prefer 1099 more than W2. What would you prefer? LLC W2 or 1099?

Is it Better to Be 1099 or W2 for Taxes?

Particulars

Form 1099

Form W-2

Eligible

Contractors and non-employees

Employees only

Issues to whom?

Non-employees and a copy sent to the IRS

Payroll employees and a copy sent to the Social Security Administration (SSA)

Perfect for

Specialized or any particular task

Committed and regular help

Payment

Based on contract

Salary

Purpose

Utilized to record the total amount paid to freelancers

Employee taxable compensation and tax withholding 

Tax information provided

Usually none

Federal and state income taxes, FICA withholding, and other employee benefit withholding

Deadline

January 31st

January 31st

Submit online

Yes! But you must abide by IRS rules

If you have provided proper disclosures as outlined by IRS, you can submit Form W-2 online

If you want a tax advantage, then 1099 is better. Definitely, it will help the LLC to pay you as a 1099 contractor to avoid the payroll taxes of the employer portion. 

But you cannot get Form 1099 if your LLC is designated as a corporation. Your LLC should be a single-member or partnership LLC to be eligible for Form 1099.

So, if you have decided to pay yourself as an independent contractor, you must apply for Form W-9 with your LLC. Later, the LLC will file IRS Form 1099-MISC at the end of the tax year.

Generally, you will pay a 15.30% tax on Form 1099. There is 12.4% for Social Security and 2.9% for Medicare.

Furthermore, you will also receive various tax deductions. For examples,

  • Car expenses,
  • Business travel,
  • Business insurance,
  • Educational expenses,
  • Cell phone,
  • Health insurance,
  • Home office,
  • Depreciation of property and equipment.

Undoubtedly, you may pay fewer taxes as a payer of Form 1099 than a traditional employee of Form W-2.

On the contrary, you must report valuable information to the IRS if you have employees or LLC employess. For instance, medicare taxes, social security, and income tax withholding. Lastly, you will distribute and file Form W-2 and Form W-3.  

Ultimately, deciding between a 1099 and a W-2 depends on your LLC’s current revenue, expenses, and current situation. 

Conclusion

A service provider can tell you better to select LLC w2 or 1099. Hire an expert to analyze your LLC condition and suggest a better tax solution. Best of luck!

Frequently Asked Questions

Should I pay myself a 1099 or W-2 from my LLC?

 Yes! You can receive payment from your LLC as a W-2 employee. In fact, it helps to get regular paychecks like an employee of a business. Lastly, you can predict your income for personal finances if you pay yourself a W-2.

Does an LLC require a 1099?

Only if your LLC is a sole proprietorship or a single member. You must file a 1099 for business. On the contrary, if your LLC has an S-corp tax status, then there is no need for a 1099.

Can LLCs work on W-2?

Your LLC can work on W-2 if it’s a single-member LLC. It enables you to file LLC taxes with your W-2 income. It will be on your personal tax return. Moreover, it will represent your self-employed status and report on Schedule C.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


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