Laurel, MD · Member since 2017 · 17 posts · 4 votes
About to start first rehab. I wanted to know as an owner when I pay a individual to do work is that different than when I pay a company to do work. Should I have contracts for all jobs being performed or is it okay to have some one just do a job without a contract (i.e. demo work, etc.) When does something get 1099? And are there other thing my wife and I need to be aware of when recording payments for work done?? We are just trying to start this off right and just looking for some insight from those who have done it. Please remember we are not doing this as an LLC, just as the owners of the property. Thanks for all the input!!
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
If you pay per individual less than 600, it does not call for 1099, if they go over, you give them 1099. Each individual or company needs to fill out a W9 that gets their details and SSN/EIN. End of the year you send them 1099 forms using info on W9. Since you verbally told them to do demo, and they agreed to be paid on certain amount over a certain number of days (or scope of work), they are in fact contractors. A discussion about liabilities, licensing, and other areas of concern is not something that is included in these statements and is a whole new discussion, look for those info as well. Try to get J Scotts book on Rehab. I think they sell it here or in Amazon.
This should be under Contractor or Rehab thread where people can advice, pitch in more. This thread is for actual construction diaries with pictures of the progress and success.
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
Generally speaking:
1. People you hired should be licensed and insured. You're usually not insured unless work is done for your own home.
2. Get in writing what the work is and how much before starting.
3. 1099 Requirement are somewhat technical. I have yet issued 1099's in my rental business, but generally:
a> You have them complete a W-9 form.
b> Not required if you're dealing with a corporate outfit, corporation or LLC.
c> Not required unless contractor is paid over $600.00/yr.
d> Only for services. So if a quoted contract is for labor and materials, only the labor part is reported.
I know many people doing rehabs as individuals, and few mention they ever issue 1099's. However, there are IRS publications on it that you can google. Also, Quickbooks does 1099 reporting if you use it and set it up right.
Laurel, MD · Member since 2017 · 17 posts · 4 votes
9y
@Frank Chin If I am paying my teenage nephews to do some demo work how do I capture this? I am trying to keep could accounting of this rehab. For this portion I am not using any contractors. Thanks in advance.
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
Since I assume you don't have accounting setup or spreadsheet setup, the first thing you do is set up a separate bank checking account for doing this. So if you pay your nephew $50.00 to do some work, pay him with a check, or withdraw $50.00 cash and pay him, and mark down what he did in the checkbook. Later on, you can set up spreadsheets and Quickbooks.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
If you pay per individual less than 600, it does not call for 1099, if they go over, you give them 1099. Each individual or company needs to fill out a W9 that gets their details and SSN/EIN. End of the year you send them 1099 forms using info on W9. Since you verbally told them to do demo, and they agreed to be paid on certain amount over a certain number of days (or scope of work), they are in fact contractors. A discussion about liabilities, licensing, and other areas of concern is not something that is included in these statements and is a whole new discussion, look for those info as well. Try to get J Scotts book on Rehab. I think they sell it here or in Amazon.
This should be under Contractor or Rehab thread where people can advice, pitch in more. This thread is for actual construction diaries with pictures of the progress and success.
Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
9y
Get a W9 from everyone/company working on your property, before they start. If you don't need it fine, but if you do, you'll have a hell of a time getting it from them after they're long gone.
You don't need to file 1099s for work that you pay for with a credit card because CC companies issue those to the recipient instead. For everything else, you should record who got what so that you can tell who crossed the $600 threshold. I like to use the fewest methods of payment as possible to be able to easily track down payments, and I try to avoid cash.
Always get insurance for each flip, I personally get builder's risk and liability. If I use a GC I get on as additional insured on their policy. Basically everyone I know uses REIGuard.
Not exactly related, but always request a lien release as a condition of last payment.
Laurel, MD · Member since 2017 · 17 posts · 4 votes
9y
@Kuba F. I doing this project as myself, not as an LLC or business are 1099's still required if working with an independent contractor, individual, or company, etc. ? Thanks for the info. I want to make sure before I start handing out W9's to everyone.
Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
9y
@Fred Mejias I missed that part. I suppose that could change things as you're only required to do it for your trade or business, and if you're NOT doing it as a trade or business then the IRS might not care. You should check with a paid professional under what circumstances the IRS might care in your situation.
@Kuba F. I doing this project as myself, not as an LLC or business are 1099's still required if working with an independent contractor, individual, or company, etc. ? Thanks for the info. I want to make sure before I start handing out W9's to everyone.
Just a word of caution, don't start issuing 1099's to businesses that is a corp, or LLC, and be careful it's only for services.
I had an S Corp. doing IT work for a customer. Sold him $20,000 in computers, and did $5,000 in consulting work. He sent a 1099 on me for $25,000. That triggered an IRS audit, the issue being on my tax reporting, I'm not showing the entire $25,000 for services, which I have to pay FICA. After going through my books, I advised the IRS the 1099 is in error, it's only $5,000 in service income, the rest is the sale of goods, with COGS of $15,000 and the IRS sent me a letter of apology. He was my only client that year for IT.
As he was my client, told him it was totally unnecessary to issue a 1099 for me to begin with, as I am a corp. and if he is going to start doing it, do it correctly, as I don't want to waste my time on IRS audits.
My consulting back them includes installing accounting system for clients, and I just retired from an a part time accounting job where the company is on Quickbooks, and I have to configure it correctly to issue 1099's to consultants.
Laurel, MD · Member since 2017 · 17 posts · 4 votes
9y
@Frank Chin I trying to avoid W9 and 1099 if possible. I was reading some where that if I am doing this as an individual and not as a company than I can take all these payments as rental expenses and not issuing 1099's for the work performed. Than again since I am rehabbing and not renting at the moment, I may have to wait until I actually rent the property to take any expenses. Whether its through rental expense or through increasing the depreciation value (adjusted basis). Is it cost of labor is rental expenses and the value of the improvement increases the depreciation? Thanks for all the info!!
@Kuba F. I doing this project as myself, not as an LLC or business are 1099's still required if working with an independent contractor, individual, or company, etc. ? Thanks for the info. I want to make sure before I start handing out W9's to everyone.
I just want to add that if you're doing it as a business, don't get too hung up on 1099's, make sure you're dealing with a businesses that's licensed and insured, if not, it's going to cost you.
I had a business, had regular employees and some 1099 guys. An accident happened, 2 employees and a 1099 guy got injured. My regular employees had workman's comp, I have a policy, the 1099 guy did not. All 3 guys wind up in the hospital and workman's comp covered the employees. The 1099 guy was in the hospital for a little less than a week, he told them he was working for me. The hospital called me and wanted to send me the bill, something in the neighborhood of $30K. They said it I could give them my workman's comp policy number, they'll file a claim against that.
Fortunately, I have a WC policy, but it's only for employees on the payroll, so I placed him on the payroll retroactively, and then sent in the claim. In your case, you don't even have one, and unless you got insurance, or get a contractor that's insured, you might be in for a big surprise.