When to do W-9/1099 and Independent Contractor Agreement

8 Replies

I am new to investing (focused just on flipping right now)and have never run a small business. Through books I've read recommended on Bigger Pockets and researching, I know that you need to have independent contractors fill out a W-9 and then send them a 1099 at the end of the year.  I have a couple of questions that for some reason my accountant can't seem to clarify for me.

1.) How do you know which contractors you use need to fill out a W-9? For instance, I know that a couple of my general contractors have their own LLC and are smaller companies and therefore probably need to fill them out. If I use a large company for HVAC or something, I imagine they don't need to fill out a W-9. I was wondering if there is a definitive way to know who to have fill out a W-9 so I don't just throw them at everyone like my accountant suggests.

2.) If I am using a general contractor to manage my whole project and the cost of the subcontractors that he uses are rolled into his lump sum fee that I pay over scheduled increments, do I just have the general contractor fill out a W-9 since I am only issuing checks to him?

3.) When filling out Independent Contractor Agreements, do I literally have each subcontractor fill one out?  And again, if my GC is managing everything, do I need to have all of his subs sign an Independent Contractor Agreement or is it covered under the one the GC signs since I am just paying him?

Sorry for questions that I feel are probably very basic, but I've been unsuccessful in searching the forums, searching online, and in talks with my accountant.

Thanks!

Originally posted by @Jared Patton :

I am new to investing (focused just on flipping right now)and have never run a small business. Through books I've read recommended on Bigger Pockets and researching, I know that you need to have independent contractors fill out a W-9 and then send them a 1099 at the end of the year.  I have a couple of questions that for some reason my accountant can't seem to clarify for me.

1.) How do you know which contractors you use need to fill out a W-9? For instance, I know that a couple of my general contractors have their own LLC and are smaller companies and therefore probably need to fill them out. If I use a large company for HVAC or something, I imagine they don't need to fill out a W-9. I was wondering if there is a definitive way to know who to have fill out a W-9 so I don't just throw them at everyone like my accountant suggests.

2.) If I am using a general contractor to manage my whole project and the cost of the subcontractors that he uses are rolled into his lump sum fee that I pay over scheduled increments, do I just have the general contractor fill out a W-9 since I am only issuing checks to him?

3.) When filling out Independent Contractor Agreements, do I literally have each subcontractor fill one out?  And again, if my GC is managing everything, do I need to have all of his subs sign an Independent Contractor Agreement or is it covered under the one the GC signs since I am just paying him?

Sorry for questions that I feel are probably very basic, but I've been unsuccessful in searching the forums, searching online, and in talks with my accountant.

Thanks!

I can only answer #1 as I recently went through this. 

My painter, flooring, handyman, has an LLC but also accepts payment in his name. I had him fill out a W9 and will issue a 1099 at the end of the year because in total all his work for which I paid was over $600.

Large companies are generally Inc. So they don't apply.

My CPA said the reasoning behind it is to ensure they pay their taxes for this is income to them.

Thanks Daria! Did he fill it out with his personal name or under an LLC?

Originally posted by @Jared Patton :

Thanks Daria! Did he fill it out with his personal name or under an LLC?

 He used his personal name. He asked and said he could do either way I wanted. As long as he did it i was glad. Those that are apprehensive i don't do business with. 😊

The general rule is if the business is incorporated then you do not need to fill out a 1099-Misc. Therefore any LLC or individual name will need to receive a 1099-Misc. The filing requirement threshold for a 1099-Misc is $600. So if any contractor is below that amount you are not required to file a 1099-Misc. If you are unsure and want to file, its always better to get the W-9 filled out and file a 1099-Misc.

If you are only paying the GC (GC pays subs), then you only file with the GC.  Your expense is related to him.  He will need to file a 1099 for all the subs.

I am not 100% sure on the 3rd question, however I would take a stab saying if you have a contract with the GC that it states anyone he hires (subs) falls under this agreement.  Since you are paying only one person (GC), then i wouldn't think you would need a contract for every sub.  The one contract you have with the GC which has the clause anyone he/she hires fall under that initial contract.

@Jared Patton see my response above.  I am a CPA and if you need help with your taxes or bookkeeping please feel free to reach out.

Phil

Thank you very much Phillip! That's exactly what I was looking for. If anything else comes up, I will be reaching out. I see you are from Cincinnati. Do you have a local office? 

@Jared Patton

Rule of thumb- if you pay anyone more than $600 and they are not incorporated you should get W9 and issue 1099. 

Question 3 -If you don't pay anyone you don't need a W9. 

@Jared Patton I sit in an office over in Anderson Township near 275 on the east side. I am more than welcome to meet you at some point if you would like to talk in person. Please let me know. PM me

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