When do you need to issue a 1099 to a vendor?
After contacting several tax accountants for an answer to this question, as well as an IRS agent, the answer provided was the same:
You must issue a 1099 to all vendors you have paid over $600 that are not corporations. Only Corporations are exempt when issuing a 1099. The decision to issue a 1099 is not based on if you have been provided with an EIN number from the vendor.
For example, if ABC Plumbing Company provides you with an EIN number for their business, you must still issue them a 1099 if you have paid them more than $600. If the name of the company that is indicated on the W9 that they have provided to you is ABC Plumbing, Inc., you then do not have to issue a 1099 to them as they are a corporation.
LLC's must always be issued a 1099 and they will have an EIN number.
Every year, the IRS can make changes to their requirements and it is important to have a tax accountant that is aware of any and all changes from year to year. It has been within the last several years that the IRS started requiring that LLC's be issued a 1099. This change is related to the basis in determining the vendors you must issue a 1099 even when an EIN number is provided to you on the W9.
The deadline for mailing 1099's to vendors is January 31st. The deadline for transmitting the information for vendors (those with amounts that have been paid indicated in Box 7 that are more than $600) to the IRS is also January 31st..
I think the blanket statement that you always have to send a 1099 to an LLC is incorrect.
From the IRS instructions for 1099MISC there is an exception to the "always pay" rule, and then an exception to the exception that says you still have to do 1099 for lawyers.
Exceptions. Some payments do not have to be reported on Form 1099-MISC, although they may be taxable to the recipient. Payments for which a Form 1099-MISC is not required include all of the following. Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). But see Reportable payments to corporations, later.
Reportable payments to corporations. The following payments made to corporations generally must be reported on Form 1099-MISC. .... Attorneys' fees reported in box 7. Gross proceeds paid to an attorney reported in box 14.
I think that most of us who collect W9s probably ignore section 3 but it's quite important. This is where the person indicates how their LLC is taxed.
@Shera Gregory Thank you for clarifying.
On W9, a company must check a box. If they checked "corporation" - a 1099 is not required. However, there's much more to the 1099 rules.