Rental Property Investor · Chicago and mainly invests in KS remotely · Member since 2018 · 360 posts · 314 votes
I work with a few independent contractors on rehab projects. These ICs are either sole proprietors or work in their sole member LLC. I started reading into 1099-NEC and from posts on BP and elsewhere it sounds like I have to get W-9s filled out from my contractors, and then file a 1099-NEC for each IC by Jan 31, 2022.
However, I just spoke to my accountant, and he said that I only need to send out 1099-NEC if the were working with me and I was the one sending invoices to my ICs. The roles are reversed in reality, and I receive invoices from the ICs, therefore I don't need to send out 1099s. Is this correct?
I read so many mixed opinions on this topic, some say don't file and take the few hundred dollar fine if you are audited, some say the fine is HUGE because IRS assumes without W-9 filled out you have to withhold 24% of payment to the ICs, some even say I don't need to send 1099 as long as I am not in the trade or business of real estate activity (which I don't believe that I am). Can someone please spell out the correct path here, thank you.
Its a new form, with new rules. Here are some of the important points directly from the IRS website, but please follow the link to read everything about it. It starts about halfway down the page when you go there:
"File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:
At least $600 in:
Services performed by someone who is not your employee (including parts and materials) (box 1);
Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
Payments to an attorney (box 1). (See Payments to attorneys, later.)
Trade or business reporting only.
Report on Form 1099-NEC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements.
Exceptions.
Some payments do not have to be reported on Form 1099-NEC, although they may be taxable to the recipient. Payments for which a Form 1099-NEC is not required include all of the following.
Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation)
Independent contractor or employee.
Generally, you must report payments to independent contractors on Form 1099-NEC in box 1"
@Jim Kennedy I must be blind because under the Exception that you listed, on the website I can't find the matching exception for independent contractor.
The one issuing the Forms 1099 to contractors would be the landlord. Whether you are engaged in a trade or business is a facts and circumstances test. A landlord operating one rental may have an argument they are not operating a trade or business. Compare this to a rental operation with multiple rentals. It also depends on certain tax positions you may take on your income tax return; for example with respect to qualified business income deduction - IRC 199A.
In short you need to speak with your CPA to see whether you need to file forms 1099.
@Allen L. The bulleted points didn't paste correctly. It was supposed to say in contrast to .
Independent contractor or employee.
Generally, you must report payments to independent contractors on Form 1099-NEC in box 1
Independently it discuses the fact that a 1099 need not be sent to a S or C corporation or LLC electing to e treated as one. In short, the rules don't appear to be any different, just a new and exciting form to fill out!
Heres a good way to find it rather than scanning the whole IRS page: Hold down "Control" and "F", and a dialogue box will open usually towards the upper right hand part of your screen.
Type in the four words Independent contractor or employee It will show you 4 hits for that exact phrase, and you can clikcm the down key to find the one wea re discussing. Its the second of the 4 hits.