Cheaper contractor but no W9

6 Replies

Hello, I am new to REI and still crossing some bridges for the first time. My question today relates to the following scenario:

I have some kitchens and bathrooms that need to be remodeled in several of my units.  An acquaintance of mine has experience in successfully completing this type of work, however he does not do it professionally.  This person will be able to complete this work for thousands of dollars cheaper than a "professional" contractor.  However, this person would be opposed to  completing a W9. 

Question 1) Is there anything "wrong" on my side of things if I pay someone for work who does not complete a W9?  Is it fully their responsibility to handle their taxes, or could I be culpable under these circumstances?

Question 2) If I do pay this person without receiving a W9, does this prevent me from claiming my payment to him as a tax-deductible expense? 

Question 3) In your opinion, is there a point where the price savings could be so great that you would consider it to be worth the consequences of not having a W9 from the contractor? (assuming that this is not illegal)  To use an exaggerated example, suppose the non-W9 worker will complete the work for $5000, whereas a professional would charge me $15,000.  

For the purposes of this question, assume that the non-W9 worker's quality of work is equal to a professional's.

I am not an accountant, but I am a contractor that deals with these taxes every year. You're not subcontracting the the work to them, so you don't need a W9. They're used to issue 1099s, which are used for subcontractors. You're just hiring them to complete work just as if you were having them do the kitchen or bath at your own house. With that said, have you considered how much longer it could take, how inferior the end product could be, what happens when something goes wrong and he doesn't have insurance and all the other issues that will make it not worth it to hire an amateur contractor? 

@Bryan Devitt Hi Bryan, due to my inexperience, I may be misunderstanding, but are you saying that if you were to hire an outside worker to complete a kitchen remodel, you don't ask them to complete any tax paperwork on the front end? My understanding is that my CPA would want to know their type of tax structure and tax ID number?

Otherwise, I'm understanding that you're saying that it makes no difference in terms of my own tax deductions if I hire a professional LLC contractor, or an amateur friend of mine who has no professional/corporate structure?

Your other concern is certainly valid. I suppose that is tied into question 3 in my original post, at what point would the price difference make it worth it to you?  For what it's worth, this project is fairly simple, it doesn't involve messing with plumbing, electricity, removing walls, etc  - just typical paint, appliances, counters, etc. 

Originally posted by @Matthew Defore :

@Bryan Devitt Hi Bryan, due to my inexperience, I may be misunderstanding, but are you saying that if you were to hire an outside worker to complete a kitchen remodel, you don't ask them to complete any tax paperwork on the front end? My understanding is that my CPA would want to know their type of tax structure and tax ID number?

Otherwise, I'm understanding that you're saying that it makes no difference in terms of my own tax deductions if I hire a professional LLC contractor, or an amateur friend of mine who has no professional/corporate structure?

Your other concern is certainly valid. I suppose that is tied into question 3 in my original post, at what point would the price difference make it worth it to you?  For what it's worth, this project is fairly simple, it doesn't involve messing with plumbing, electricity, removing walls, etc  - just typical paint, appliances, counters, etc. 

How are your properties structured? Are they in an LLC or corp? I don't know of any benefit to sending 1099s to contractors that do work directly for you but I might be ignorant to some benefit. As to where the line is where it is worth it, that really depends on what it is and where it is. If it is a low end property then I would worry less but if it is a high end property then it's never worth the risk to me.

@Matthew Defore Some people ask me for a W-9 and some do not. I always provide it even though because I'm incorporated, they really don't need to send me 1099s. At least that's the way I understand it.

I'm your case, I would be far more concerned with them not having insurance than the tax issues. You may save on the short end but as @Bryan Devitt said if something goes wrong what will you do?

Also, you can get a W-9 and if they don't file, that's not your problem. I send them out to people I use for labor and I'm certain they don't file taxes. but I'm covered.

@Bryan Devitt Anyone,  of a Corp/entity  you pay more than $600 to for services you plan to write off Must receive a 1099 from you, in order for you to deduct the expense......thus you need a w-9 for the correct information.  You Can issue the 1099 and state “the receiver of the money refused to fill out the W-9, but the the guy gets a 1099 which is what he was trying avoid to begin with.

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