Rehab/contractor tax question
I got an estimate for a rehab from a contractor for 30k. Since he has a business, do I still need to obtain an unincorporated IC taxpayer ID number and file a 1099-MISC form with the IRS? Or since he has a business, all I need is a receipt for the total cost and depreciate that amount over 27.5 years? I realize I can accelerate some of the rehab and depreciate over 5 years. However, I’m just wondering if a receipt from them is good enough and assume he is reporting this work for his business.
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#4 Tax, SDIRAs & Cost Segregation Contributor
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You should request and obtain an executed IRS Form W-9 from the independent contractor.
You may have an obligation to issue the IC a 1099-MISC depending on the information on the W-9, how much you paid the IC, and the method of payment.
@Eamonn McElroy
Thanks for the response. I know this is a dumb question but I’m still a little confused.
He works for a small business. I’m confused between the difference between this and say paying a business for a 5k foundation repair I had last year. The foundation company gave me a receipt and I was good to go with just that. What’s the difference? Will a receipt from this contractor’s business be good enough? Same with a roofing company that replaced my roof. Just have a receipt for that too. Didn’t file anything with the IRS. What’s the difference between some rehab repairs vs paying a plumber or roofer that work for a company. Or is this only for someone who is independent and doesn’t work for a business?
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There is no difference... you should have requested and obtained an executed W-9 from the foundation repair IC last year.
The determination whether or not you have a 1099-MISC filing obligation is solely the result of examination of the executed W-9 and all facts related to the payment.
You shouldn't take the contractors word for it that you don't have to file a 1099, and in doing so you have not met your due diligence obligation. Most construction contractors don't want you to issue them a 1099. Hint hint.
If it's overwhelming or confusing you may want to pass off this obligation to your CPA while you focus on the core business.
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OF you are making payment to an individual ($600 or more) you absolutely need to 1099 them. If paying to a corporation, no need. Not sure on an llc with it’s own EIN.This the purpose of them filling out a W-9, so you can determine if the 1099 is necessary.
Originally posted by @Eamonn McElroy:There is no difference... you should have requested and obtained an executed W-9 from the foundation repair IC last year.
The determination whether or not you have a 1099-MISC filing obligation is solely the result of examination of the executed W-9 and all facts related to the payment.
You shouldn't take the contractors word for it that you don't have to file a 1099, and in doing so you have not met your due diligence obligation. Most construction contractors don't want you to issue them a 1099. Hint hint.
If it's overwhelming or confusing you may want to pass off this obligation to your CPA while you focus on the core business.
I’ve never filed 1099s from HVACs I’ve had replaced by businesses either. This is technically the same situation isnt it? I didn’t realize we needed to do this every time we hire a business to do work over $600. I thought if it was an individual who did work over $600 you needed to do this, but not businesses. This contractor works for a small mom n pop business. I believe it’s his own business with less than 10 employees.
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#4 Tax, SDIRAs & Cost Segregation Contributor
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I believe the confusion is that you are defining an independent contractor as a one-man sole proprietorship...
An independent contractor is an individual or business that provides services to your business and is not your employee. That's a pretty broad category. It's what they do and how they do it, not their size or how they're organized.
I think you might find value in bringing on a CPA or EA as an external partner to assist you with your compliance obligations... Focus on the core competency unless you want to spend hours reading tax law and IRS pubs...
For any vendor or contractor, you should obtain a current W-9. If the W-9 indicates it is a C or S Corp, you do not need to file a 1099. For any other type of organization, you should file a 1099-MISC for any payments greater than $600. Specific instructions can be found here: Instructions for Form 1099-MISC