To the IRS, “I’m an LLC” is the wrong answer!
For most bookkeepers and accountants, the dog days of summer are pretty slow. I like to use these slow times to get ahead on my inevitable year-end tasks. One of my biggest projects every January is preparing 1099 forms for my clients. And every year I find more independent contractors who like to check the “LLC” box on their W-9 forms …and stop there. This article is devoted to all the LLCs owners out there so we can go over exactly how to complete any W-9 forms that come your way.
First off, be sure you’re using the current form. The IRS released a new version of the W-9 in December of 2014 and it introduced a huge change for businesses operating as an LLC. So, if your W-9 doesn’t say “Form W-9 (Rev. December 2014)” in the top left corner, go get yourself a new form! Click here for a current form.
Next, notice that the Limited Liability company box is followed by a field where you should enter the tax classification. You may select from “C” for C corporations, “S” for S corporations or “P” for partnerships. The big change? There’s no box for sole proprietorships! That’s because the form now forces you to report your LLC properly.
Folks, there’s no such thing as an LLC in the eyes of the IRS. An LLC is a state-sanctioned entity and acts a bit like a chameleon, being “taxed as” something else. There are four possible choices:
- Most of the businesses that I run into are LLCs that are “taxed as” a sole proprietorship. This means that the income of the business is reported on Schedule C of your personal tax return (the Form 1040 that we all love to hate). If this describes your situation, then you report your legal name in the “Name” field (e.g., Jane Doe), your LLC’s name in the “Business name/disregarded entity” field (e.g., Constructive Consulting, LLC) and your address in the address fields. Then you check the box that says “Individual/sole proprietor” and enter your EIN in the “Employer identification number” boxes in Part I.
- The second most common type of LLC that I run into is the LLC that is “taxed as” a partnership. This means that you report the income of the business on a Form 1065 Partnership return. This is a simple situation where you check the box for “Limited liability company” and enter “P” on the tax classification line.
- If you file Form 1120-S or Form 1120 to report your LLC’s income, then your business is being “taxed as” an S Corporation or C Corporation. So, check the “Limited liability company” box and enter either “S” or “C” on the tax classification line.
Bottom line: If your friendly, neighborhood bookkeeper contacts you for a W-9 form and inquiries about your business entity type, “We’re an LLC!” is simply not an adequate answer! Go dig out your last tax return if you don’t know which form was filed and check the right box on that W-9 form. The bookkeepers in your life will be eternally grateful!
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.
