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Who Needs a 1099?

by Kenny Estes on January 31, 2014 · 12 comments

  
Taxes 1099

At our company we’re in the middle of changing our payroll providers.

We did the logical thing and had the new provider start with the new year; however, pesky things like issuing 1099’s for 2013 were dropped into a limbo state.  Now, they’re due today (January 31st in case this article is slow to the presses).  Can you guess how I’ll be spending the next few hours?  This article is for anyone else in a similar situation to me.  The first question you have to ask yourself is…

Who Needs a 1099?

The laws change often, but a call into our accountant yielded some general guidelines for 2013.  As a rental real estate owner, every person or company you pay for a service, as opposed to a good (there are some nuances, when in doubt err on the side of sending too many), needs a 1099, unless:

  • They are a W-2 employee
  • They were paid less than $600.00
  • They are incorporated.

It’s important to note that a company is only incorporated if they’re a C-Corporation or an S-Corporation.  LLC’s don’t count.  In today’s world of LLC’s gone wild, this means there are no shortage of companies that need 1099’s.  If you’re in doubt, either call them and ask or do a business search with your Secretary of State.

On second thought, don’t go to the Secretary of State because you’ll still have to call the company to get their Federal Identification Number.  Which leads to our next question…

What Information Do You Need?

The 1099-MISC form is straightforward.  you need is:

  • Federal Identification Number (EIN or SSN)
  • Name
  • Address
  • Amount paid
  • (state identification number is optional)

The above list is specific to use real estate folks.  If you pay withholding, things get more complicated.  However, I don’t thank many people pay withholding for their plumber.

Individually, that’s not much information. In aggregate, it adds up.  Maybe your contractor is on vacation…or maybe he’s ducking your calls because you waited until January 31st to get your act together.  Either way, you’ve got to ask yourself:

What Happens if You Don’t Have All of the Information?

Missing an address?  Missing the Federal Identification Number?  Well you have two options:

  1. Wait until you have all the information.  The January 31st, 2014 deadline is to give the 1099’s to your contractors.  The IRS receipt cutoff is February 28th.
  2. Don’t turn in the 1099.  If you fail to submit a 1099, it’s a $50 fine per instance.

Under no circumstances should you submit a 1099 with incomplete information.  It’s an automatic fine because the IRS doesn’t like the headache.

Wrap It Up: Who needs a 1099?

Please keep in mind, I’m not an accountant and you should always submit all forms to any government agency in a timely manner.

On a related note, I’ve got some contractors to call.

Related: 9 Timely Tips for a Stress Free Tax Season

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{ 12 comments… read them below or add one }

Geoff January 31, 2014 at 7:34 pm

Great info, thanks for sharing.

Reply

Kenny Estes February 1, 2014 at 7:25 pm

Cheers for the comment Geoff.

Reply

Syl February 1, 2014 at 4:41 pm

“every person you pay needs a 1099 ”
That is incorrect. Every person you pay _for a service_ needs a 1099. (Subject to the exceptions listed.)

Example:
You purchase cabinets from a local carpenter. He charges $1000 for the cabinets, and $400 for installation. You do NOT issue a 1099.

The plumber bills you $850. $150 is for parts, $700 for labor. You DO issue a 1099.

You pay one guy (or company) $150/month for yard maintenance for May-October. He needs a 1099.

Reply

Kenny Estes February 1, 2014 at 7:25 pm

Thanks for the comment Syl. You are correct, my original wording was over-strong, I’ve loosened it a bit.

Cheers,

Kenny

Reply

Steve Babiak February 1, 2014 at 11:26 pm

Actually, in the example provided, you would have paid the carpenter $1400 so he would get a 1099. Had you purchased the cabinets in your own and only paid the carpenter the $400 for labor, then no 1099 is required. When the service provider buys materials and you pay that service provider for those materials, then those amounts paid for materials DO count toward the total paid to that service provider for the purposes of issuing the 1099.

Reply

Syl February 2, 2014 at 8:35 am

I suppose it depends on if you consider the cabinets “merchandise” or “materials”. When in doubt, it’s best to issue one, so you are correct.

Steve Babiak February 2, 2014 at 10:37 am

By the same reasoning as in my other comment on this blog entry, the plumber in the example gets a 1099 for $850. Had you purchased those parts on your own then you would only issue the 1099 for that $700 of labor.

Reply

Kenny Estes February 3, 2014 at 5:21 am

It’s definitely a gray area. When in doubt, issue one.

Reply

Geoff Van Dusen September 17, 2014 at 11:48 pm

I’m confused, only on the labor part, why would the plumber get one for $700 (assuming no parts), but not the cabinet installer for $400. But further up in this thread it said that paying one person 150/month for x months does get one. So I am gathering there is an amount over x of labor that a person gets a 1099?? I was told that anyone that does labor for me, no amount mentioned, needs to be issued a 1099. Is this true if I am paying a company, or just individuals?

Reply

Steve Babiak September 18, 2014 at 8:20 am

The 1099 only needs to be issued when total amount paid to the vendor is $600 or more. So no need to issue if only $400 was paid.

Goes for individuals and companies, although corporations (they have Inc. as part if the name usually) do not have to be given a 1099. The IRS website is the definitive source for all things pertaining to issuing a 1099, so do some reading there.

Bruce February 2, 2014 at 1:02 pm

http://www.silkroadrealtyinc.com/website/blog/default.asp?Display=4043

According to this tax firm, landlords that are NOT real estate professionals do NOT need to submit 1099s

Anybody know where to see the actual text of the law?

Reply

Eric Caliboso September 17, 2014 at 2:09 pm

Hi Mr. Estes,

I have a question regarding issuance of 1099-misc from the property management company perspective.

If a property management company set up just one trust account for all the properties they are managing, come 1099 season, who should issue 1099 misc to independent contractors, the property management company or LLC who owns the property? The payment issued to independent contractors are property expenses but the checks were issued from your trust account. I really appreciate your response. Thank you.

Reply

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