1099-NEC and K-1 For Same Work

[yadamjones]

My wife and I are partners in an LLC that we started in 2022.  We have yet to file the 1065 (but will do so soon) and we issued K-1s to ourselves as a result of the work and distributions occurring in 2022. 

My wife did some consulting work through the LLC and the company she consulted for sent her a 1099-NEC for the work. I'm worried that filing both the K-1 and 1099-NEC on our return will result in us getting double-taxed on the amount.  Would love advice on what to do here. Thanks!

[MinhT1 · Accepted solution]

If your wife did the consulting through the LLC and the income has been reported by the LLC, then the form 1099-NEC should have been issued to the LLC and there would not be any double reporting of income. You should have submitted a form W-9 to your client in the name of the LLC. You can ask your client to correct the form 1099-NEC to make it out to the LLC.

Please note that if you live in a Community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) your husband-wife LLC is a disregarded entity and you could report its income and expenses on your personal joint return on Schedule C..

[mattdabbs]

Here is the issue.

When you file the 1065 it includes all the LLC 1099 NEC's built into the profit/loss.

Then later Turbo tax asks you to enter any 1099s you might have. So there is a worry that by not putting those in that you aren't reporting the 1099s but they were included in profit/loss on lines 1 & 14 on the 1065. Does that make sense? Can we just attach the 1099s and expenses to the 1065 to make sure they get reported? And if we do that, then later when TT asks for any 1099s we don't include them.

Is this correct or what is the right way to do this?

[DianeW777]

It depends.  If you are saying that the 1099-NECs are income from the service and business of the partnership, then the income should be included with other income that is reported on the Form 1065.  This would reflect the correct profit on the K1s and you would not duplicate it on your personal return.

• If this is the case and if the 1099-NECs were reported in your personal social security numbers (SSNs) and not the EIN of the partnership you can nominee that income to the partnership using the information below, so the IRS is looking for the income on the right tax return.

Nominee Returns.

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list yourself as the payer and the other owner, as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here: 

• Form 1096  
• Form 1099-NEC

Unlikely and incorrect scenario:

If you are saying the partnership is paying you and reporting the payments on Form 1099-NEC, then the partnership would have written off that expense and the partners would have to claim that income on their personal returns.  They would also report their portion of the net profit from the K1.

@mattdabbs 

[mattdabbs]

Thank you...I worked through this again in TT. Here is what I found. When I enter the 1099s for my LLC in the 1065 they also show up in my personal income in the system. I deleted them from my personal income and that deleted them from my business income. So I had to re-add them in the business income. I just had to make sure this wasn't counting them twice.

What is confusing is unlike last year, TT is now creating a new business for any 1099 NEC's that are to me personally rather than to my LLC. So now I have a new business created in my taxes in TT In schedule C it is asking for the name of this business...well it is actually a business, owned by someone else (who paid me via 1099 NEC) so I am confused as to which business name to enter - I assume it is the company who paid me not some made up name because TT created a new business.

Does this make any sense? I have no idea why the change from last year.

[mattdabbs]

PS - thanks for the amazing reply!

[mattdabbs]

So sorry for spamming you.

Let me try to sum this up.

I did work and got a 1099 NEC. It wasn't through my LLC. It was paid connected to my SSN. When I put this in TT it created a new business with a schedule C. So now I have all kinds of questions to answer - did I participate materially in this business, is this qualified business income, etc? Now TT has a new sole proprietor for this 1099 NEC. That seems very strange to me. Maybe I did this wrong.

I didn't start a new business but now I have to fill out schedule C in turbo tax to get this 1099 NEC through. Is this right?

Thank you SO MUCH! TT keeps dropping my calls and when they call back it drops that too. So I can't seem to get help otherwise on how they are setting this up.

[GeorgeM777]

Following up on your most recent post (April 10, 2023 at 10:34 AM), if the 1099-NEC is not income from self-employment, then you should report the income as other income, which will appear on line 8 of Form 1040.  There are two ways to report income as other income in TurboTax.  Both will produce the same result, yet one method involves fewer screens.  Those methods are described below.

Here are the steps to enter the 1099-NEC as other income:

1. To enter other income in TurboTax online, click on Wages & Income, left side of screen. 
2. Scroll down the page to Less common income, click on the drop-down arrow and select Miscellaneous Income.  
3. From the list select Other reportable income and respond to the questions on the screens that follow. 
4. On the screen, Other Taxable Income, you may see information indicating that you should not report a 1099-MISC in this section.  Just ignore that statement and enter your information.  

If you are using TurboTax CD/download, the process is similar.  After selecting the Personal tab, and the Personal Income tab, scroll down the screen to Less Common Income, and select Miscellaneous Income.  Enter your information. 

There is another section of TurboTax that relates to 1099-Misc but you can use it to enter your 1099-NEC.  This section is Other Common Income.  Please note that when working through the Other Common Income section, you will see a screen asking whether your 1099 represents an intent to earn income/money, and while it may seem counterintuitive to select No, that is the response you need to select.  If you select Yes, TurboTax will report this income as self-employment income, and you will be back in the tax position you want to avoid.  Thus, select No, and continue through the application.

@mattdabbs 

[mattdabbs]

Thank you for your help! I have what I need to file. Much appreciated.

[dmurray59]

My wife and I have a multi-member LLC and we filed a 1065 for the business and issued K1 forms.  Included in the business income was money reported on a 1099-NEC but to my wife's ssn.  Now I'm looking at reporting this as nominee income as explained in your post, but I'm a bit confused on what to put on the new 1099.  Let's say the 1099-NEC had income of $1000 to my wife's SSN, but it was recorded on the 1065 as profit.  Does she fill out a 1099-NEC as the nominee and the recipient is the LLC?

[MarilynG1]

Yes, that's correct.  She would fill out a 1099-NEC as the 'Payor' and the 'Recipient' is the LLC.  On the Form 1096 (cover sheet to report 1099 to IRS) she is the 'Filer'. These forms are prepared/filed outside TurboTax.

She can report the 1099-NEC income as Miscellaneous Income and make an adjusting entry in the same section to zero it out, with a description 'Adjustment for Nominee Income'.  

1. Select Income & Expenses.
2. Scroll down to Less common income and select show more.
3. Scroll to the line Miscellaneous Income, 1099-A, 1099-C, and check start.
4. On the page Let's Work on Any Miscellaneous Income scroll to the line Other reportable income and click start.
5. On the page Any Other Taxable Income select yes.
6. On the page, Other Taxable Income enter the description and amount.

Here's more detailed info on How to Prepare Nominee 1099's.  

@dmurray59 

[dmurray59]

Thanks so much.  That gets me over the hurdle.  We are going to change the personal SSN to the business EIN for next year!

[dmurray59]

@DianeW777 Just a point of clarification.  If I click on the links for the 1099-NEC and 1096 in your post which are in red, it says you can't print them because they are not scannable.  It seems that you have to order them from the IRS, but I'm guessing they are just the regular ones, not the ones in red.  I can generate the 1096 and 1099-NEC in TurboTax Business, but again they are in black and white.  And if I order the scannable ones from the IRS, can I scan them in as a PDF and fill them out electronically?  Thoughts?

[DianeW777]

Perfect. It's fine to print in black and white and just send them in.  The IRS will not return them, but accept them as received.  Through TurboTax Business you may be able to file them through e-file.  Click on Quick Employer Forms while you are in the tax return as you indicated to generate and file the forms.

[dmurray59]

Thank you!