1099 Contractors through LLC

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Does anyone here who operates through an LLC 1099 their contractors for flips and or rehabs for rentals? I was talking with an accountant friend of mine and she mentioned this form. She is not involved in real estate, neither of us know if it is required, beneficial, or indifferent. Any input would be greatly appreciated, thank you.

If you are operating a business (flipping is definitely a business, rehab on rentals is a grey area), then you are **required** to request a W-9 form from anybody to whom you pay more than $600 for services.  Based on how they fill out that W-9 form, you may or may not have to issue them a 1099.

Issue 1099s to:

Sole Proprietors

Partnerships

LLCs

No need to issue 1099s to:

C-Corps

S-Corps

For landlords, it's a grey area because it is really tough to know if you're investing or running a business.  I have clients that will claim its a business and that they are actively involved when they want to deduct their losses, but suddenly its an investment when they are trying to duck out of doing 1099s.

You can't have it both ways though.  So decide if your rentals are a business to you or an investment.  But in either case, it's worth it to just issue the 1099s regardless.  If the IRS decides that you should have issued them and did not, then they will issue penalties to you.  Those are:

$50 for each form you issued late (deadline is 1/31)

$100 for each form you issued late more than 30 days, but before August 1

$260 for each form you issued after August 1

$530 for each form you intentionally neglected to file.

You can only claim ignorance of the law once, so I always advise my clients to just do it.

PS - These rules are for everybody. It does not matter how YOU are organized. You can be a sole prop, LLC, S-Corp, C-Corp, Land Trust or whatever. These rules apply to you as the payer regardless of your entity type.