Business Management

Investors, NOW is the Time to Issue 1099s: Here’s Who Needs to Receive Them

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issue-1099s

Don’t forget — the time for filing 1099s is almost here. If you are required to file 1099s, then forms must be sent to the recipient by January 31st. The forms must also be sent to the IRS by February 28th if you file the 1099s by mail or by March 31st if you file electronically. January 31st is right around the corner, so make sure you’re getting the forms done now.

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A question we get all the time at our office is, “Who must 1099s be issued to?” Here are a few pointers for real estate investors:

The rule is that if you paid someone more than $600 during the 2015 year, then you may need to issue a 1099 to them. One common misunderstanding is that the $600 rule is by vendor, not by check amount. For example, let’s say you have a plumber that you call out to one of your rentals a few times a year. If each time he comes out he charges $300 and he came out a total of three times that year, then the total you paid your plumber is $900. In this scenario, you may need to issue him a 1099 since the total you paid him during the year is more than $600.

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Related: 3 Tell-Tale Signs You’re NOT Running a Tax-Efficient Business

What You Should Do BEFORE You Pay Your Contractors

You should give a W-9 to each contractor that you hire to fill out before you pay them. It is a good idea to get the W-9 up front before you pay a person because odds are if you ask them for a W-9 after you already paid them, they may be reluctant to give you their information to avoid reporting that income. You do not need to verify that the info they give you is correct. If they give you false information and the IRS finds out, the IRS will simply inform you and tell you to withhold taxes next time you pay this person. You will not have penalties in this scenario.

To make sure that you don’t get stuck paying a contractor’s tax liability, make sure that you get a W-9 from each and every contractor, even if you’re not sure if you need one. When it comes time to fill out 1099s, your CPA can help you to determine which contractors should be issued one.

The IRS requires 1099s to be issued so that they can track income earned by independent contractors. By issuing a 1099, you are giving the tax liability on that income to the contractor to report. If you do not issue 1099s and you are audited, the IRS will penalize you anywhere from $200 per payee or up to 28% of the amount that you pay them to cover the tax on the income that this person may not be reporting since you did not issue them a 1099.

How to Prepare for a Possible Audit

You never know what an auditor will be looking for, as the level of leniency during an audit can vary drastically from one auditor to the next, so it is important to make sure that 1099s are issued correctly, as this is likely an area that they will want to look into.

I have seen some auditors make the taxpayer pay tax and penalties for each unissued 1099s, but I have seen others give the taxpayer time to go back and issue the 1099s to avoid paying tax on the income. Remember, it is the payer’s responsibility to issue 1099s to their contractors, so get the documentation up front to protect yourself.

You generally need to issue 1099s to contractors, property managers, wholesalers, consultants, landscapers, and handymen. If they operate their business as an S-Corporation or a C-Corporation, then you generally do not need to issue the form to them. The 1099 requirement usually only applies to LLCs, partnerships, and sole proprietors. The exception to this rule is for attorneys. If you pay an attorney more than $600, then you must issue them a 1099 regardless of the type of entity that they have.

tax-implication-notes

Partnered With Someone? They May Need a W-9, Too

Other times you may want to issue a 1099 is if you partnered with someone on a deal and they got a cut of your profit. Request a W-9 from them to see if a 1099 needs to be issued. For those of you renting space from a landlord, you may also need to issue a 1099 to your landlord if rents exceed $600.

Related: How to Prove Tax Deductions as an Investor: A Guide to Tracking Receipts

Make sure that you’re covered this tax season. If you have not requested W-9s yet, get them now. The longer that you wait, the harder it may be to get them back from contractors. To fill out the 1099, generally all you need is the W-9 and the grand total paid to each payee for the year.

Most office supply stores, such as Office Depot or Office Max, will have 1099 Forms available. Remember, you must purchase official 1099 Forms and cannot simply go online and print off free forms from the internet. If you don’t feel comfortable filling out the forms on your own, ask your CPA to prepare them. You don’t want to get stuck paying someone else’s tax, so make sure your 1099s are issued on time and filled out correctly.

Investors: What has been your experience with 1099s? Anything you’d add to the discussion?

Leave your comments below!

Amanda is a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning with over 18 years’ experience. She is also a real estate investor of over 10 years with a focus on long-term hold residential and multi-family assets across multiple states. Formerly a tax advisor at the prestigious accounting firm Deloitte in the Lead Tax Group, focusing on tax strategies for the real estate industry and high net worth individuals, and at an international Fortune 500 Company in the high-tech industry in the Corporate Tax department, Amanda’s goal is to help investors with strategies designed to supercharge their wealth building. Amanda’s highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s best seller list. A frequent contributor, speaker, and educator to some of the nation’s top investment and self-directed IRA companies, Amanda has been featured in prominent publications including Money Magazine, Realtor.com, and AllBusiness.com. Amanda was a speaker at Talks at Google and is a 40 under 40 honoree by CPA Practice Advisor, showcased amongst the best and brightest talent in the accounting profession. Her firm Keystone CPA, Inc. was awarded a two-time winner of the Top CPA of Orange County Award by OC Metro Magazine. She is certified by the CA State Board of Accountancy and is a member of the prestigious American Institute of Certified Public Accountants (AICPA) with clients across the nation.

    Mike McKinzie Investor from Westminster, CO
    Replied almost 4 years ago
    Also, don’t forget if someone has paid you interest, you need to give them a 1099-INT, similar to what a bank gives you for the interest you pay them.
    Cheryl C. Investor from Reston, VA
    Replied almost 4 years ago
    I made the mistake of paying one individual without getting the W-9. I have e-mailed 3 times and called once. No response. Last week I sent a certified letter (return receipt requested) requesting their EIN or SS#. Will this help me in any way if I get audited?
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Hi Cheryl, Keep trying to connect with them…it can help you avoid penalties. It may help you in an audit, but issuing 1099 is the key!
    Brock Adams from Chapin, South Carolina
    Replied almost 4 years ago
    Very good article. I have never heard the point made when renting space from a landlord, you may also need to issue a 1099 to your landlord if rents exceed $600.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Always check with your advisor to make sure you are doing things correctly.
    Ronnie Sparrow Investor from Spring, Texas
    Replied almost 4 years ago
    I paid a landscaper $820.00 for the entire year for landscaping several of my rental properties. When I tried to get the W9 he told me he did not have a company name and does not have a SS# ! Oh shoot , now what do i do?
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Ronnie, in the future best to get the W9 up front before making payments to your vendors.
    Ronnie Sparrow Investor from Spring, Texas
    Replied almost 4 years ago
    Also, I borrowed money this year from a Private Lender and paid him interest when I refinanced into a fannie mae loan. Do I need to send him a 1099?
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    It depends…to be safe you may want to issue a 1099.
    Jerry W. Investor from Thermopolis, Wyoming
    Replied almost 4 years ago
    Thank you Amanda
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    You’re welcome Jerry!
    Eddie T. Rental Property Investor from Jamaica, NY
    Replied almost 4 years ago
    Amanda their have been other blog posts on this site stating that landlords receiving rental income are exempt from filing 1099’s as per congress.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Eddie, This is a gray area so you will want to check with your CPA. We recommend our clients issue the 1099s to be safe.
    Bart Cook from Pike Road, AL
    Replied almost 4 years ago
    Good information. Thank you!
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Thanks for reading Bart!
    Tyler Lyons from Grand Rapids, MI
    Replied almost 4 years ago
    Very helpful post for newer investors like myself, Amanda! It’s easy for a newbie like myself to overlook some of the “blocking and tackling” compliance requirements of being a real estate investor. Great post.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Thank you Tyler, I am glad you found it helpful!
    margaret smith
    Replied almost 4 years ago
    I have to ask my lawyers for W-9’s for the fees I have paid their firms- Really??? I have never heard this! Does it matter what kind of work they did- ie. closing fees, title searches, and the like, which I normally account for as expenses coming off my profit in the sale of a rehabbed house— or litigation? Does it matter whether it was a business-related issue (foreclosure, for instance), or a personal one ( eg.estate planning, trustee fees)? If I have never done this, should I just go forward as of this year, and let sleeping dogs lie? OY!!!!
    Jerome Kaidor Investor from Hayward, California
    Replied almost 4 years ago
    What about eviction services?
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Yes if you pay an attorney for business expenses a 1099 is generally required.
    margaret smith
    Replied almost 4 years ago
    I have to ask my lawyers for W-9’s for the fees I have paid their firms- Really??? I have never heard this! Does it matter what kind of work they did- ie. closing fees, title searches, and the like, which I normally account for as expenses coming off my profit in the sale of a rehabbed house— or litigation? Does it matter whether it was a business-related issue (foreclosure, for instance), or a personal one ( eg.estate planning, trustee fees)? If I have never done this, should I just go forward as of this year, and let sleeping dogs lie? OY!!!! Reply Report comment
    Mai Yang from Sacramento, California
    Replied almost 4 years ago
    Great article. Very informative and lots of useful information. Thank you!
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    You are welcome Mai.
    Raman Patel Investor from La Habra, California
    Replied almost 4 years ago
    Thanks for the information. Article is really very informative & eye opener for everybody especially for newbies.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Yes, it is!
    Jerome Kaidor Investor from Hayward, California
    Replied almost 4 years ago
    How about small interest expenses? A local city requires that landlords pay interest on security deposits. The City Attorney sets the interest rate every November. Recent interest rates have been VERY low. Last year, I sent my tenants checks ranging from $0.25 to $0.35. Most of them didn’t cash them. 1099-INT?
    Nate T. Investor from Tempe, Arizona
    Replied almost 4 years ago
    I have read in the IRS guidelines at some point that you send the 1099-INT only if you’ve paid $10 or more in interest.
    Jerome Kaidor Investor from Hayward, California
    Replied almost 4 years ago
    Sensible. I wish the City Fathers had shown such sense. I had to send a letter to each of my tenants apologizing for sending them those silly little checks.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Too small to worry about in my opinion.
    Adrian Smalls Investor from atlanta, GA
    Replied almost 4 years ago
    Great article!! I am so busy making sure that I am making good investments that I forget about the other half of the equation; which, will ultimately affect the very numbers regarding “true profit.” Thanks again!
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Yes, dont forget this part Adrian! Glad it was helpful.
    Robert Taylor Broker, Investor, Property Restorer from Fox Point, Wisconsin
    Replied almost 4 years ago
    Good article, but one HUGE missing part-ALL investors sure as heck better read up on the contractor (or independent contractor) vs employee rules, which besides being stringent from the IRS, vary from state to state. If your “contractor” doesn’t have a SS#, a legit business entity, their own tools, sets their own schedules and on and on and on, not sending a 1099 is the LEAST OF YOUR WORRIES IF YOU GET AUDITED! You’ll have them all reclassified as employees and well, I don’t want to ruin a perfectly good day for anyone here, but LONG GONE are the days of “hey I don’t feel like withholding taxes, paying employer contribution and all of that payroll BS, so you’re all contractors!”
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Knowing the rules is vital!
    Daisha Smith from Boerne, Texas
    Replied almost 4 years ago
    Thanks, very informative for this young newbie !
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    You are welcome Daisha!
    Rob Van Stronder Residential Real Estate Broker from Lutz, Florida
    Replied almost 4 years ago
    Office Depot / Office Max also offer and electronic filing of 1099’s. Very affordable at $3.95 per 1099. They electronically file it and snail mail the 1099 to the recipient. Here is the link – https://efiletaxforms.efile1.com
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Great point Rob, thanks for sharing!
    Marcus Auerbach Rental Property Investor from Milwaukee - Mequon, WI
    Replied almost 4 years ago
    I thought you only have to issue a 1099 if you are a real estate professional, meaning you work more than 50% or at least 700hours (or 800?) in the field of real estate. If you have a full time W2 job its hard to be considered a real estate professional, because you’d have to work 80+ hours a week (40 in your job and more than 40 in RE). I have issued 1099’s last year and my new CPA is telling me that was unnecessary because I am not a RE pro. Is he wrong?
    Marcus Auerbach Rental Property Investor from Milwaukee - Mequon, WI
    Replied almost 4 years ago
    This is from the ZACKS Reasearch homepage: If you rent out a house or apartment, you may worry that you have to send 1099s to contractors you hire to work on that house or apartment. A clause in the 2009 Affordable Care Act said that when you own a rental, you send a 1099-MISC to anyone who billed you more than $600 for work on the property. That rule was repealed, but the old information is still out there in cyberspace, adding to the confusion. Unless you’re a real-estate professional, you’re safe, and you don’t have to file the 1099 for that work.
    Matthew Jonas Investor from Atlanta, Georgia
    Replied over 1 year ago
    Marcus… did you ever receive a definitive answer on this? Still curious here in 2018
    Matthew Jonas Investor from Atlanta, Georgia
    Replied over 1 year ago
    Marcus… did you ever receive a definitive answer on this? Still curious here in 2018
    Austin Hughes Rental Property Investor from Lubbock, TX
    Replied almost 4 years ago
    Know who ELSE you should issue 1099’s to? DEADBEAT TENANTS. Any of you ever considered issuing a 1099 to your tenants who haven’t paid rent in months? You could 1099 them for the benefit gained..maybe even damaged items? 🙂 Welcome.
    Brock Adams from Chapin, South Carolina
    Replied almost 4 years ago
    I believe judgements will have more meat than a 1099
    Jerome Kaidor Investor from Hayward, California
    Replied almost 4 years ago
    Now that is a cool idea. Revenge would be sweet.
    Melissa Siqueiro from Laveen, Arizona
    Replied almost 4 years ago
    This is one of my favorite posts I’ve read on BP, thank you! I even sent it to my friends that are stand up comics and run shows. Most of them don’t even know they have to pay taxes, let alone buy 1099 forms. I had no idea of that part.
    Amanda Han Accountant from Fullerton, CA
    Replied almost 4 years ago
    Thanks Melissa! I am glad you enjoyed reading the post.
    Susanita VanGood
    Replied 10 months ago
    If you issue a 1099-MISC to a partner, are they required to pay SE tax and report on Schedule C even if they didn’t participate other than funding the flip? Thanks for the article.