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What Businesses Are Exempt From a 1099?

what businesses are tax exempt

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The IRS requires businesses to send out Form 1099s to small businesses that serve as independent contractors or participate in specific transactions with the provider company. The majority of small businesses which operate as sole proprietorships, partnerships and LLCs require these 1099s if the amounts exceed $600; however, the IRS generally exempts corporations from receiving Form 1099 except in a few circumstances.

Corporation Exemption for Form 1099-MISC

Form 1099-MISC provides information to the IRS that helps it track independent contractor income akin to the way the W-2 supplies information about employees. Due to the high level of administrative reporting for corporations, the IRS exempts corporations from needing to receive a Form 1099-MISC. However, a few exceptions exist that require a 1099-MISC for corporations, including medical and healthcare payments and attorney's fees in excess of $600.

$600 Threshold for 1099-MISC

Other business structures -- general partnerships, limited partnerships, limited liability companies and sole proprietorships -- require Form 1099 issuance and reporting but only for amounts exceeding $600. Therefore, if

you paid any of these entities less than $600 for rental payments or services rendered, these businesses are exempt and do not require 1099s.

Additional Exempted Businesses

The IRS also exempts payments made to certain individuals or made for certain items. For example, all rental payments made to real estate agents are exempt, as are payments made to tax exempt entities including trusts. The IRS exempts any payments you made to companies for telephone, freight, storage or related items. Payments you made to businesses for the purchase of merchandise are also exempt from reporting.

Additional Corporate Non-Exemptions

Although Form 1099-MISC is the most commonly used 1099, other forms apply for specific situations. Corporations are not completely exempt in those situations. Cancellation of a corporation's debt below $600 is exempt but more than that amount requires the submission and filing of Form 1099-C. Sale or abandonment of security property to you by a corporation requires Form 1099-A. A barter transaction of any amount requires Form 1099-B.

IRS Requirements and Uncertainty

Category: Taxes

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