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If a check is made out to me personally and endorse it over to a LLC for deposit, what happens with the 1099 I receive later?

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  5. If a check is made out to me personally and endorse it over to a LLC for deposit, what happens with the 1099 I receive later?

Yours is an interesting question, and much of the answer depends on what kind of LLC you’re forming (or have). If you’re forming a single-member LLC treated by the IRS as a ‘disregarded entity’, how you receive the income might not matter so much, as business income and losses will be reported in Schedule C of your personal tax return every year. Directing income to the LLC instead of you might save you money on self-employment taxes, but it usually has no impact on your federal income taxes.

However, if your LLC is taxed as a partnership or S-Corporation and you enjoy pass-through taxation on the business income, how you receive income could matter a great deal more. To learn more about tax options of a LLC, read our other knowledge-base article entitled, Do I have to file income taxes if I have a pass-through entity?

If you own a LLC treated as a pass-through entity for tax purposes and you personally receive payment for services performed (particularly payment of $600 or more, such that the IRS requires issuing a Form 1099-MISC), the IRS will consider that money to be your personal income and not income of the LLC, regardless of whether the payment is for services performed by the LLC. You could turn around and give that money to the LLC as a capital contribution, but that probably won’t let you offset that income using the LLC’s business losses or tax deductions unique to business income. Endorsing the check over to the LLC won’t automatically change its tax treatment, as the IRS will still expect you to personally report that income listed in the Form 1099-MISC.

The best thing to do from a tax perspective, is to have the check issued (or re-issued, if necessary) by the payor to the LLC and have the LLC report it as income. Even if you own a single-member LLC treated as a ‘disregarded entity’, doing this is still a good accounting practice. Routinely accepting payments in your own name and transferring them to your LLC could be seen as commingling of funds and could one day open the door to creditors “piercing the corporate veil” and holding you personally liable for the debts and obligations of the LLC. Read more about Piercing the Corporate Veil.

Adopting good practices early will help you avoid this and many other issues unique to LLC ownership.

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2 comments

  • Thomas Wilson /

    Can a creditor take money directly from an LLC’s clients (payors)[levy the LLC’s accounts payable directly from the client] if the judgment is against the LLC or can they only go after the LLC’s assets after they receive them such as accounts receivables after they are paid to the LLC? The creditor is seeking funds from a judgment against the LLC which was formed in Wyoming and the LLC does its business in Washington.

    • Hi, Thomas.

      You should really talk to an attorney in WA about this. It depends on a few factors, namely the law in WA (not WY) and the terms of the Note (subject of the judgement). For example, if the Note gave the creditor a lien on your accounts receivable, they can certainly go after the LLC’s A/R (I note that you said “accounts payable”, not “accounts receivable,” but I’m assuming that is a typo, since “A/P” is what the LLC pays to others, while “A/R” is the funds the LLC gets from others (i.e. clients)).

      Therefore, it is possible for a judgement creditor to go after the A/R, not just LLC assets, but it depends — and that’s why you need to talk to someone in WA about this.

      Larry.

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