My Roofer is MADDDD I 1099'd him

Tax, SDIRAs & Cost Segregation
10yFollow

My Roofer is MADDDD I 1099'd him

David Roberts
Brownstown, MI · Member since 2014 · 344 posts · 98 votes

So 2015 was my first full year in the real estate business.  Someone published an article a week or two ago about making sure we get our 1099s together out to our contractors and such.  I honestly didn't know I had to do that, so I called my CPA and asked about it.

I told him that I had a roofer guy do 2 roofs for me (I paid him over 10k) and my main contractor which I paid 27k+ last year.

My CPA suggested I 1099 both of those guys, and to try to get their SSN but if not, still 1099 them to protect the business.

I called my contractor and he was ok with it, although he acted a little surprised I was asking.  He even gave me his SSN.  

The roofer,  I didn't bother to even ask.  He's a roughneck type and I knew he would not be happy.  So I just got the phone call.  I saw his name pop up, and I 'gulped' lol.

I'm not sure he was even aware of what the 1099 was, but he was livid. I  couldn't even get a sentence in without getting cut off repeatedly about how I'm acting like he's done 15 roofs for me and "I've done several others for everybody else and nobody's ever 1099'd me".

When i asked if I could explain what the paper was and why I had to issue it he just cut me off and said he didn't care to hear it.  At the end he told me to lose his number and never call him again.

Did I do anything wrong?  Should I not have sent him one?  I was just trying to protect the business and do the right thing.  I lost a good, cheap roofer over it, too.

1Reply
345 views

Most Popular Reply

Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y

You did right. If they didn't claim it thats their issue. They are due to be SENT Jan 31 or this year Feb 1. If they have an issue that's their problem. If I'm paying 600 or about to hit the threshold I get the W9 filled put before I cut the check. No W9 no check and VERIFY the number they are giving you to make sure it matches their docs...

[email protected]224-381-2660
5Reply
See this reply in the discussion

65 Replies

Jump to latestLatest
  • Jacob Sampson
    Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    It's the law baby.

    0Reply
  • Account Closed
    Accountant · Philadelphia, PA · Member since 2013 · 303 posts · 210 votes
    10y

    Was he paid in cash? The IRS will disallow deductions paid in cash that you don't have a receipt for unless you have a 1099. If you're not getting receipts and 1099ing people appropriately you are taking on an inordinate amount of risk.

    0Reply
  • David Roberts
    OP
    Brownstown, MI · Member since 2014 · 344 posts · 98 votes
    10y

    When it comes to business i pay everybody i intend to deduct with a check or some other form other than cash.  I like the paper trail just as well so i can go back and look at the checks that the bank shows on my statements.

    The roofer was paid by check for both roofs.  

    I have only been in business officially for just over a year so im learning.   This is my first tax season and it was due to a BP article about being sure you 1099 all your contractors that tipped me off to it.  I didnt know what I didnt know, but BP saved me again.

    According to the roofer, as hes yelling at me, hes going on about how nobody ever 1099s him and I'm acting like he did 15 roofs for me and such. 

    I just think he doesn't know.  If he knew the rules i think he wouldnt have called me, he woulda just never returned another phone call,  or he would have said "hey Dave I thought this was under the table" or whatever. 

    I appreciate all the opinions.   I learned alot and grew from the experience.   

    0Reply
  • Dan Vleck
    Deerwood, MN · Member since 2014 · 184 posts · 122 votes
    10y

    Who knows exactly why he was so mad. Obviously didn't want to pay rax on that money.  Could even be that the roofer won't be getting his unemployment check anymore. 

    I just finished filling out my first 1099misc. My plumber suggested I do it when I asked him. Great guy. Not cheap, but honest family man.

    0Reply
  • Mark Brogan
    Investor · Roanoke, VA · Member since 2012 · 1k+ posts · 374 votes
    10y

    @David Roberts

    Most people have no clue about how the tax system works,nor do they wish to find out 

    All people understand is getting back a tax refund at the end of the year and giving them a 1099 jeperdizes that 

    I give them out every year and all the contractors try to talk me out of it 

    As for the roofer that told you to lose his number,I would do that for sure and find a better roofer that is willing to work within the Tax system

    Good luck

    0Reply
  • Frank R. Knight
    Contractor · Chicago, IL · Member since 2016 · 14 posts · 6 votes
    10y
    Asking for w9 before you finalize the contract will let them know what you intend to do.... It's not against the law to pay cash, If you pay cash you are to keep a cash log and this should be backed up with an invoice... If they are a S- Corp or C-Corp you don't need to 1099..... If you get caught not 1099ing the subs that are not INC, the penalties are 10% of the amount paid.... In illinois you want to be careful with using the same subs that are not Inc because the rules are strict... Read the compiled statues for employment rules... Pm me if you need any other help.... I know because I just went through a audit for two years with the irs.... I'm an expert now...
    1Reply
  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Frank R. Knight:

    Asking for w9 before you finalize the contract will let them know what you intend to do.... It's not against the law to pay cash, If you pay cash you are to keep a cash log and this should be backed up with an invoice... If they are a S- Corp or C-Corp you don't need to 1099..... If you get caught not 1099ing the subs that are not INC, the penalties are 10% of the amount paid.... In illinois you want to be careful with using the same subs that are not Inc because the rules are strict... Read the compiled statues for employment rules... Pm me if you need any other help.... I know because I just went through a audit for two years with the irs.... I'm an expert now...

     Actually the penalty is not a percentage.  The penalty is $250 per occurrence.

    [email protected]224-381-2660
    1Reply
  • John Vietmeyer
    Investor · Johns Island, SC · Member since 2014 · 120 posts · 41 votes
    10y

    Is there not a loop hole that allows investors with a small number of properties to be exempt from submitting 1099s?  

    0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    10y

    @Steven Hamilton II wrote

    Ouch I thought is was $25

    The ultimate irony

    I don't think anyone has mentioned it but it  makes zero difference to the contractor. If no one else is sending him 1099s, your one 1099 is  not going to be enough that it is likely taxable. Assuming he files and claims SOME income, it adds little risk to him.

    I am not trying to justify the contractor's cheating on taxes. I am just saying if he is going to cheat anyway the one 1099 is not going to affect him much if at all.

    0Reply
  • Frank R. Knight
    Contractor · Chicago, IL · Member since 2016 · 14 posts · 6 votes
    10y
    Steve Hamilton, it's 10% or 250. New law I got hit with 10%
    0Reply
  • Robert Leach
    Contractor · Romeoville, IL · Member since 2015 · 198 posts · 137 votes
    10y

    I have received a few 1099's this year but as a C corp, it really has no bearing on my company. I send out 1099's every year to my labor so why would anyone think that wouldn't be the case is beyond me. I will say that if you are writing a check to someone not incorporated as an S or C, I would be sure to get a w-9 from them before releasing the check and of course any lien waivers that are applicable. 

    1Reply
  • Stephen Chittenden
    Rental Property Investor · Gambrills, MD · Member since 2014 · 372 posts · 88 votes
    10y
    Actually, it's 10% or $500, whichever is greater, for both the copy sent to the contractor and the copy filed with the IRS. That's potentially 20% of the amount that should have been reported. That penalty only applies if you intentionally disregard your obligation. If you didn't know you were supposed to, the standard penalty is more likely to apply. The standard penalty is just a flat $250 for each copy, $500 total. However, if you fix it before certain deadlines reduced penalties apply. One note is that while I agree you shouldn't have to tell people you're going to report the payment as the law requires you to do, you really do need their TIN (SSN or EIN) before you make the payment. I'd recommend either a signed and dated W-9 or getting electronically in a way that shows when you received it. Making a reportable payment without a TIN in hand subjects you to a 28% liability for backup withholding even if you get the TIN later and report the payment. Most of us aren't going to get audited, but it's a good practice to follow just in case.
    0Reply
  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Frank R. Knight:

    Steve Hamilton, it's 10% or 250. New law I got hit with 10%

     I forgot the new update it is $500 or 10% whichever is greater if it is intentional disregard.

    [email protected]224-381-2660
    0Reply
  • Sean Cole
    Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
    10y

    Having been around a while, I can say with certainty that most 1 truck contractors aren't expecting to get a 1099 for their work for you.  Right or wrong; legal or illegal, it's the truth.

    As we all learned after leaving school, there's a difference between the way things happen in the real world and the way we think things are supposed to happen in the real world.  In the real world, you'll pay more if you tell your contractor that you're going to 1099 him/her.  It's your choice whether you do or not.

    I can tell you that I've heard more than 1 accountant say that auditors are looking for a pattern of issuing 1099s, so you don't have to be at 100%, but you better not be at 0%, either!

    0Reply
  • Kimberly H.
    Residential Real Estate Broker · Chicago Suburbs, IL · Member since 2013 · 1k+ posts · 594 votes
    10y
    Originally posted by @Frank R. Knight:

    i.... In illinois you want to be careful with using the same subs that are not Inc because the rules are strict... Read the compiled statues for employment rules... Pm me if you need any other help.... I know because I just went through a audit for two years with the irs.... I'm an expert now...

    Are you saying that when the IRS audited you that they determined that the people who hired should have been considered employees? If so, how much did they work for you? Was this a federal IRS audit or state of Illinois? I believe you’re talking about “EMPLOYMENT (820 ILCS 185/) Employee Classification Act” that I just found from googling. Says a report needs to be filed to the IL Dept of Labor, is that in addition to the 1099 to the IRS??? I have never heard of such a thing, not from my accountant, lawyer, anyone, etc….what the heck??

    I know a house flipper and landlord of 140 rentals who has given me some names of his contractors. Said everyone should be 1099’d. Yet when I’ve asked for w9s people have lost their minds. Window guy said he gave me a “cash price” even though that wasn’t discussed, he gave me his price, it wasn’t qualified as cash or otherwise and accepted payments via check with no issue. To me cash means cold hard cash as in no paper trail and it wasn’t that.

    0Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y

    I'll just say that the way you carry yourself professionally or not has a lot to do with any 'miss-understandings' in regard to your vendors 'wink-wink' pricing methodologies. 

    If you're getting a continuous stream of vendors who are appalled at your audacity to 1099 them or demand a w-9 before cutting a check you are probably telegraphing (probably intentionally) this type of winky winky give me your cheapest under the table job pricing. Either that or you're intentionally hiring the bottom feeder vendors over and over again and getting what you're paying for. You might want to raise your standards or change your own business methods and appearance. Not to sound high and mighty, but in two decades and hundreds upon hundreds of thousands of checks paid to vendors I've yet to ever be verbally accosted by a vendor or even had a vendor shocked that he was getting 1099'd. 

    You carry yourself professionally and the dregs pretty much figure you out within a few minutes of meeting you what the drill is going to be, they know who they are dealing with by your cues. Nobody is going to be shocked unless you're telegraphing that type of stuff is an option to them.

    2Reply
  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 905 votes
    10y
    As others said, you did the right thing. If your contractor is a corporation (not LLC or sole proprietor or individual) you are not required to send them 1099s, otherwise you (or your company) have the liability.
    0Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    I'm really surprised that no one has made this comment yet.

    Perhaps the roofer never gets 1099s because he primarily works for individuals (homeowners) rather than businesses. If he really "does this on the side," then maybe he has done so few jobs that he has never worked for a business, so he never received a 1099.

    0Reply
  • David Roberts
    OP
    Brownstown, MI · Member since 2014 · 344 posts · 98 votes
    10y

    Sylvia, that's not the case.  He's into construction and lives on these jobs.  He does do both homeowner and investor stuff and made it a point to tell me hes done work for lots of other guys in this business and not one of them have 1099d him.   My answer before being cut off quickly was "well maybe they aren't running their businesses properly".

    Im sure it was a surprise to him,  which i take responsibility for. I didn't know i had to 1099 until a few weeks ago,  but i still take the responsibility for that.   Constantly learning,  and I'm sure it won't be the last time i find out something late. 

    He works hard no doubt and i dont think he was out to screw me over or anything malicious.  Id keep using him if he would be ok with 1099 even if he charged me alightly more.   Hes good.  

    0Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y

    David, I hope in all this you picked up about W9s. This isn't just about 1099ing. As a business the entire process is to get a W9 from all your vendors you are spending more than $600 with. The W9 will give you all of the information you will need when it comes time to send out 1099s. (Name, address, Tax ID number, what legal entity they are...)

    Also in your case as you're nervous about upsetting the crooks, the notification to a new vendor prior to the work started that you require a W9 from them before a check will be issued will be the 'heads up'for  the criminals that you intend to 1099 them. 

    You may ask, well are you sure about that, if they don't know about being 1099'd will they likely even realize that being asked to fill out a W9 will lead to a 1099? The simple answer is they all know, they all know all about this, believe me, when you're a tax cheat you know the rules better than anyone, pleading ignorance and things like "nobodies ever 1099'd me before" combined with being upset about it means they know exactly what they are doing and know why they don't want that 1099. If they are upset about it, that's all the indication you need to understand you're dealing with a criminal and not a newbie who doesn't know but wants to do things legally.

    We have a pre-printed set of documents and a cover sheet for the manilla folder every vendor gets, the cover sheet is a checklist of all the items required for the IRS, the accountant, our insurance audit etc... with each vendor you just check off each item that will be required so you have all your paperwork intact and complete. The agreement the vendor gets plainly states that no check will be issued without XZY paperwork from them. Believe me they get their paperwork to you once they are holding up their own payment.

    This all might seem daunting keeping up with all this, but it's actually quite simple once you systematize it, it's just part of the process. You'll find with legitimate vendors this is all expected and you'll run into organized vendors who will retrieve a prefiled out W9 from their truck for you even. The ones who look at your funny are either new and you're going to be the one who educates them or they have been around and they are just crooks.  Most of the time when those types realize you run your business legitimately, those vendors are the ones who will disappear you'll never get a bid returned.

    1Reply
  • Kimberly H.
    Residential Real Estate Broker · Chicago Suburbs, IL · Member since 2013 · 1k+ posts · 594 votes
    10y
    Originally posted by @Mike F.:

    I'll just say that the way you carry yourself professionally or not has a lot to do with any 'miss-understandings' in regard to your vendors 'wink-wink' pricing methodologies. 

    If you're getting a continuous stream of vendors who are appalled at your audacity to 1099 them or demand a w-9 before cutting a check you are probably telegraphing (probably intentionally) this type of winky winky give me your cheapest under the table job pricing...they know who they are dealing with by your cues. Nobody is going to be shocked unless you're telegraphing that type of stuff is an option to them.

     So if that happens, a person is asking for it? LOL! 

    Just like I don't declare when I go to the bank that I am not there to rob them, I shouldn't have to declare to my contractors,"I want your best, but *NOT*-under-the-table, price".  Well...maybe I do. I operate in Cook County (Crook County) after all!!

    1Reply
  • Greg Nolan
    South Berwick, ME · Member since 2015 · 13 posts · 3 votes
    10y

    Well if you're paying him like someone who doesn't report then why would you expect him to be happy when you 1099 him? If you hire more expensive professional contractors you wont have this issue, but don't expect to get the same rates.

    0Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    10y

    Wen get 1099's from businesses , never from homeowners .   Did do work for a HVAC contractor , he was 6 months pay after 5 phone calls . At the end of january his office called asking for my info . " I told them to send me the info  I will fill it out and get it back to them as fast as I got my check "     She hung up the phone 

    1Reply
  • John Arendsen
    Homeowner · VISTA, CA · Member since 2015 · 727 posts · 340 votes
    10y

    Ha! Sounds like a guy that just wants to avoid his/her responsibilities. In Cali we have to 1099 if he's not a partner, employee or family member who's one of the owners. I wouldn't even deal with a guy like this. Does he even carry workman's comp insurance?

    0Reply
  • Hugh Ayles
    Cedar Park, TX · Member since 2015 · 377 posts · 200 votes
    10y

    If the roofer is cutting corners on taxes, where else is he cutting corners?

    I ask for a W9 before the first check is cut. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free