Landlords a 1099 applies to you! Do you collect W-9s from contractors?
Well did you collect W-9s from those contractors? Did you know that services over $600 threshold require that you do? When you use independent contractors to perform services for your business, for each individual whom you pay $600 or more for the year, the IRS requires that you issue a Form 1099-MISC after the end of the year. This is true for landlords too, in order to avoid losing the deduction for their labor and expenses. This requirement generally does not apply to payments made to a corporation. However, the exception does not extend to payments made for attorney fees and for certain payments for medical or health care services.
Did you hire a repair person in 2018?
When you hire a repair person who charges you at least $600 througout the year, you must issue a Form 1099MISC in order to deduct it on your tax return. It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later and have the total for the year exceed the $600 limit. As a result, you might overlook getting the information necessary to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services. Having a Form W-9, that the independent contractor properly completes and signs, will eliminate any oversights and protect you against IRS penalties and conflicts.
What is a W-9 Form?
The government provides IRS Form W-9, “Request for Taxpayer Identification Number and Certification,” as a means for you to obtain the data required from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law, should the individual provide you with incorrect information. We highly recommend that you collect w-9s for all your vendors or independent contractors prior to engaging in business with them.
Do You Issue a Form 1099 to your Service Providers?
Many small business owners and landlords overlook this requirement during the year. And, when the end of the year arrives and it is time to issue 1099-MISCs to service providers, they realize they did not collect the necessary documentation. Often, it is difficult to acquire the contractor’s, handyperson’s, gardener’s, etc., information after the fact, especially from individuals with no intention of reporting and paying taxes on the income. That is why it is important to collect w-9s from these service providers, you protect yourself as a landlord and you can deduct the expenses on your taxes.
Tax Reform’s 20% Pass-Through Deduction
This has become even more important in light of the tax reform’s 20% pass-through deduction (Sec. 199A deduction). This is since the regulations for this new tax code section caution landlords that to be treated as a trade or business. Therefore, it is generally eligible for the 199A deduction. Landlords should consider reporting payments to independent contractor service providers on IRS Form 1099-MISC.
IRS Treatment of Rental Properties versus Investment Properties?
This wasn’t generally necessary for rental activities in the past. And believe it or not, the IRS still doesn’t require a 1099-MISC when the rental is an investment rather than as a trade or business. The IRS regulations gave this caution after the close of 2018, which caught everyone by surprise! Therefore it left most rental property owners to deal with obtaining W-9s after the fact from service providers and issuing the 1099-MISCs after the due date of January 31, 2019. Each late-filed 1099-MISC is subject to a penalty of $100 if not filed by August 1, 2019.
Rental property owners, do you have questions about 1099-MISC income?
1099-MISC forms must be filed electronically or on special optically scannable forms. If you need assistance with filing 1099-MISCs or have questions related to this issue, please give this office a call. Also, make sure you have all of your independent contractors or service providers complete a Form W-9 for 2019. Contact this office and ask for Alex Franch, BS EA. He will help you work through your questions and tax issues unique to your tax filing situation. And, with tax season here, we encourage you to proactively set up your appointment today! Here are a variety of sweet client discounts to save you money.
Alex Franch, BS EA
Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning.
Sources and Resources
- 7 Ways Small Business Owners Save Money on Taxes Legally
- Getting the W-4 Right is Important!
- Form 1099 Miscellaneous Filing Deadline
- IRS Tax Guidance: S Corporation Stockholder, Reasonable Compensation
- 12 Common Tax Problems to Avoid
- Tax Reform is Confusing Part 2
- Tax Reform is Confusing! Here is a Side by Side Comparison Part 1
- Learn About This Year-End Tax Strategy
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- Employee Business Expenses: Tax Reform Suspends Tax Deduction
- Preparing Taxes for 2018 and Beyond