Real Estate Investor · Tempe, AZ · Member since 2011 · 102 posts · 27 votes
How do you guys go about paying an individual for work performed? For example I know Joe Nobody that does plumbing work, and he does a great job. Can I offer him a side job, if so how do I pay him and account for it all properly? I recently interviewed my first CPA, and they were still selling me and just danced around the questions. I don't blame them though I can understand, but I have two more CPA's to interview before getting a full consultation.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y
I still try to get a W9 from incorporated entities, because the W9 specifically states that the entity is exempt from backup withholding. When I see that the entity is incorporated, then I just don't send them a 1099 MISC. And you have to get the W9 and send a 1099 MISC to any LLC (although if the LLC elected Corp taxation they might not need to be given a 1099 MISC - not sure on that).
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
14y
The people who do work for you essentially fall into two categories (if you ignore those who do it for free):
1. Employees. These are people whose work tasks and actions you have full control over. You tell them what to do, how to do it, when to do it, where to do it, etc. You are responsible for paying employer-side taxes (payroll taxes) on their salaries. These include social security, medicare and unemployment. You are also responsible for withholding taxes on the employee side (federal and state income tax, social security and medicare). Additionally, you may be required to have workman's comp insurance (depending on state laws). There are services out there who handle much of the payroll process for a few bucks a month, so it's not as daunting as it may seem, but it does cost you money in extra taxes, overhead and possibly insurance.
2. Independent Contractors. These are people whose work tasks and actions you have limited control over. You can tell them what you want accomplished and specify a time limit and minimum number of hours, but you can't tell them how to do the job, when to do the job, whether they can sub parts of it out, etc. They are "contractors" who are hired to do a specific jobs that have a definitive ending (whether time based or task based ending). They are generally paid with cash or check (usually check) and you are not responsible for withholding taxes or paying extra taxes on what you pay them (no payroll taxes). You are required to report these payments to the IRS (and send a tax form to the contractor) at the end of the year if you pay them over a certain amount (currently $600 in a calendar year).
Now, I know what you're probably thinking -- I like the control of #1 and I like the cost/overhead of #2! While that's certainly the case, don't expect that you can get away with treating a worker like #1 and paying them like #2 -- the IRS doesn't look kindly upon that.
Residential Landlord · Chicago, IL · Member since 2012 · 356 posts · 81 votes
14y
Electronically whenever possible. Labor I usually write a check. If its $100 or less and I have cash I will sometimes go that route but only if given a receipt for my taxes.
If I know somebody who does good work, I always ask them if they want work. Pay and accounting properly is no different from above.
Not sure what you mean by "side job", but if you're asking about approaching a sub/employee to work off the clock I won't do that without consulting the contractor first. Its not worth it to burn the contractor, and its bad business.
Jeff. Are you new to rehabbing? I always have ALL employee/sub/workers complete a w-9, prior to doing ANY work. They use their ss #'s or TIN numbers issued by the state you are in. If the company is a CORPORATION, you won't need one. anyone else YES you do. You will have to supply a 1099 for any work over and above 599.00 paid in any calander year. The IRS is well informed and watching carefully about this type of "craigslist or angies list" work offered/needed, and YOU can be fined for not issuing a w-9 or reporting income.
Always write a check. NEVER pay cash. You are the one you are protecting.
This is basic contractor information. I had a construction company for 10 years building custom specs and never had any problems. HOWEVER, rehabbing attracts people that are attempting to work under the table, and I always get tested, like -"can you pay me cash or can you write the check to my wife"
I always roll my eyes and say. NO. If they do not make 599.00 then you don't have to issue a 1099 at the end of the year.
I am a professional rehabber now, and I will not take responsibility for that IRS problem. If they persist--- NEXT please.
Also, you need to keep track on a ledger exactly how much you have paid them for end of the year reporting.
There are many other reasons to pay them by check and exactly how to do it, but I won't get into that now
I don't know why you are shopping CPA's, and they won't give you information. They probably want to charge you a fee for services. If you are hiring workers off the street, that is a big gamble, as you don't know their history with law suits etc. Always best to work above the table and make sure YOU are protected.
Real Estate Investor · Tempe, AZ · Member since 2011 · 102 posts · 27 votes
14y
Definitely not what I’m trying to do, and I agree with you that there is a problem with trying to do that. I recently had a roofer come do an estimate for me, and try to pitch me for a side job at the same time. I politely said no, thank you.
I appreciate the post Ren Ver, and found it very informative; however I was a bit confused with your CPA statement. Are you saying you picked a CPA without interviewing them? If so then I would have to question your team building ability, simply because nobody in the right mind would add members if they didn't feel they would compliment the rest of the team. I am shopping CPA’s, but not for a lower price. Instead I am seeking one that understands my interests, will be there if I need them, and is willing to give straight forward answers to my questions. And guess what, there are many to choose from I don't need to point my finger in a phone book and say “that’s the one”.
All in all I think I'm going to stick with hiring contractors to avoid the risk for now.
Hello,
My comment about shopping CPA's is based on you stating you have been interviewing CPA/s NOT all of them are the same. Try and find one that has their own portfolio of investment properties. They all work of IRS guidelines, but my experience over the years has been to work with one that understands your goals and objectives -- and can relate to what you are doing. Real Estate is always in flux, as demonstrated by our current market conditions, as compared to 7 years ago, at the height of uptrending property values.
Good luck
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
14y
L Gale,
If you have questions on finance don't hesitate to ask. Where in AZ are you located? If you are near the Phoenix/Gilbert Area, I do have a recommendation.
I am one of several accountants on here who are happy to assist with tax and accounting questions here. Don't hesitate to ask basic questions on the board here as you are not the only one with the questions.
Be sure to ask about their interests in real estate. Run if they don't have investments themselves. Also remember that you don't need to have an accountant who is located directly in your area. Many accountants have clients in other states/countries.
Property Manager · houston, TX · Member since 2010 · 48 posts · 20 votes
14y
"complete a w-9, prior to doing ANY work. They use their ss #'s or TIN numbers issued by the state you are in. If the company is a CORPORATION, you won't need one. "
Property Manager · houston, TX · Member since 2010 · 48 posts · 20 votes
14y
The part about not having to file on corporations. I wasnt sure but I thought the rules this year require that corporations are no longer exempted, so now we have to file on Home Depot and others.
Home depot is not labor. Unless of course you are having them do the work. They are incorporated. Individuals with no TIN number can use their ss # when completing w-9's. Anything up to $600 is not mandatory reporting, anything over, you have to send 1099 and ALSO send recap to the IRS.
This is how I do it with my company. I would not veer off of this if you are running a legitimate business. You can be liable for all unpaid taxes (multiplied fines from IRS)
Check with your CPA
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
14y
Originally posted by Ray S.:
"complete a w-9, prior to doing ANY work. They use their ss #'s or TIN numbers issued by the state you are in. If the company is a CORPORATION, you won't need one. "
Ren Ver, are yoiu sure this statement is correct?
The part about filling in TINs being issued by the state is incorrect. The W9 is an IRS form, and it expects a SS# or Federal Employee Identification Number (EIN), not a state issued ID number.
The part about not requiring corporations to fill out a W9 is correct, as you are not (currently) legally required to issue 1099s to corporations.
Real Estate Investor · Tempe, AZ · Member since 2011 · 102 posts · 27 votes
14y
Originally posted by Steven Hamilton II:
L Gale,
If you have questions on finance don't hesitate to ask. Where in AZ are you located? If you are near the Phoenix/Gilbert Area, I do have a recommendation.
I am one of several accountants on here who are happy to assist with tax and accounting questions here. Don't hesitate to ask basic questions on the board here as you are not the only one with the questions.
Be sure to ask about their interests in real estate. Run if they don't have investments themselves. Also remember that you don't need to have an accountant who is located directly in your area. Many accountants have clients in other states/countries.
-Steven the Tax Guy
Steven,
I'm in the Tempe, Chandler area, and I did go see The Blau Company per your recommendation to another BP'er. Their office is actually just down the street, which is very convenient. I have a few more to visit, but I did like them and will quite possibly use them for at least one item. Pending how the other interviews go I may use them for all of my needs.
Thank you for your contributions on the site, your posts have been helpful in many ways.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y
I still try to get a W9 from incorporated entities, because the W9 specifically states that the entity is exempt from backup withholding. When I see that the entity is incorporated, then I just don't send them a 1099 MISC. And you have to get the W9 and send a 1099 MISC to any LLC (although if the LLC elected Corp taxation they might not need to be given a 1099 MISC - not sure on that).
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
14y
Completely agree with Steve about the W9. While you can take the word of the business owner that he is incorporated, you'd rather put the onus on him than you -- by having him fill out and sign a W9 stating he's a corporation, the liabilty is on him if he's lying, not you.
Every contractor you use should fill out a W9...then let your accountant decide who gets 1099s. In fact, if your accountant is like mine, he'll send a 1099 to every contractor, regardless of their entity claim.
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
14y
J Scott,
I completely agree with what your accountant does. It does not take much to issue an additional 1099. May as well send them to everyone. IMHO it keeps everyone honest as I am. It also shows very good compliance to the IRS when every dollar of your contract labor receives a 1099 there is less for them to audit.
Steve Babiak, Perfectly correct; however, it is much easier to just issue the form. My exceptions are the big box stores. I'm not too worried about them.