Do LLC Partner Distributions Require 1099 Forms? Understanding Partner Distributions and 1099's for LLCs

But what if an LLC partner also does work for the LLC? Like my partner does bookkeeping for our business and gets paid separately for that work. Do we need to give her a 1099-NEC for that part?

Great question! If a partner performs services for the partnership outside their capacity as a partner, it depends on how your LLC is structured. Generally, payments to partners for services rendered to the partnership aren't reported on 1099-NEC, even for services outside their partner role. Instead, these payments are typically considered guaranteed payments and get reported on Schedule K-1, Line 4. Guaranteed payments are like a salary for partners and have different tax implications than regular distributions, including being subject to self-employment tax.

How accurate is this service? I've used TurboTax for my personal stuff but our LLC tax situation is getting more complex as we grow.

Does it help with other partnership tax issues too? I'm confused about basis calculations and how much I can actually take as distributions without tax consequences.

The accuracy has been impressive for my situation - it breaks down complex tax concepts into clear explanations with citations to relevant tax code. It was particularly helpful distinguishing between guaranteed payments and distributions which my previous accountant had mixed up. It definitely helps with other partnership issues including basis calculations. It has a special section that walks through how to calculate your basis and shows the maximum distributions you can take without triggering tax consequences. It saved me from taking too much and getting hit with unexpected taxes.

How does it actually work though? They somehow magically get you through the IRS phone system? Sounds too good to be true.

Yeah right. I've tried EVERYTHING to get through to the IRS. No way this actually works. The IRS phone system is deliberately designed to be impossible.

It uses an automated system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call connecting you to them. I was skeptical too, but it worked exactly as promised - I just went about my day and got a call when an agent was on the line. The reason it seems too good to be true is because waiting on hold with the IRS is such a universally terrible experience. But the technology is pretty straightforward - it's just handling the waiting part for you, which can be hours sometimes.

Thanks for mentioning the S-corp angle. We've actually been considering converting our LLC to an S-corp for some potential tax advantages. Is the process of tracking distributions significantly different once you convert? And did you find the overall tax situation better after converting?

Tracking distributions isn't significantly different - you still don't issue 1099s for distributions, but you use Schedule K-1 (Form 1120-S) instead of the partnership version. The real difference is the salary requirement - you must pay yourself a reasonable salary subject to payroll taxes. The tax benefits can be substantial depending on your profit levels. In our case, we save about $15,000 annually in self-employment taxes since only the salary portion is subject to FICA taxes, while distributions aren't. But you have more paperwork, payroll requirements, and stricter compliance rules. Worth it for us when profits exceeded about $80,000, but every situation is different.

I've used both. TurboTax Business can handle basic partnership returns and K-1s, but if your situation has anything unusual (special allocations, guaranteed payments, multiple classes of membership, etc.), it's easy to mess up. We switched to an accountant when we hit around $250k in revenue and it was worth every penny - she found several mistakes in our previous self-prepared returns.

That's really helpful, thanks! We're still pretty small but growing fast. Maybe I'll try the software this year and budget for an accountant next year if things keep growing.

You've got it exactly right! Form 1065 and K-1s for partners, no 1099s needed for distributions or guaranteed payments. For the timing question - yes, K-1s must be provided to partners by March 15th (the same deadline as filing Form 1065). This gives partners time to complete their personal returns by April 15th. If you need an extension on the partnership return, you can file Form 7004, which extends both the filing deadline and the K-1 distribution deadline to September 15th. Just make sure to get those K-1s out on time since your partners need them to file their personal returns!