Hiring out Services, 1099's?

Question

Good Afternoon Everyone,

If I have a property management company, do I have to give vendors a 1099 each time they perform work for me? What is your process for hiring out services such as Plumbing, HVAC, General Contracting, etc? Is there a threshold of how much the services can cost before you need to issue a 1099?

Nicole A. · Answer

Simply put, if you're paying a company for services, there is no 1099. However, if you're paying an individual such as Joe Smith for plumbing work, once you've paid him $600 or more that year, you'll need to issue him a 1099.

Derrick Craig · Answer

IRS FORM 1099 REPORTING REQUIREMENTS  The Internal Revenue Service (IRS) requires businesses (including not-for-profit organizations) to issue a Form 1099 to any individual or unincorporated business paid in excess of $600 per calendar year for services rendered. This is required whether these payments are spread out over the course of the year or are paid in one lump sum payment. This form is generally not required to be issued to incorporated businesses. The only exception is when payments are made to incorporated law firms. A 1099 must be issued whenever payments in excess of $600 per calendar year are made to law firms.  The most effective way to obtain the information needed to prepare the Form 1099 is by requiring that an IRS Form W-9 be completed prior to any payment being made. Blank W-9 forms can be obtained on page two.  The penalty for failure to file Form 1099 can be as much as 50% of the amount paid for services. The responsibility for filing the Form 1099 is on the organization paying for the services (each state component). It is the responsibility of the individual/business receiving the Form 1099 to handle it properly on their tax return.  The most immediate impact of this issue is on district payments to Adjudicators and other individuals. To be in compliance with IRS regulations, component association’s state offices must keep files of all payments made by district and state offices to individuals and unincorporated businesses so that at the end of each calendar year 1099s can be issued when appropriate.  The FSMA General Requisition forms and Adjudicator Requisition forms have been redone to accommodate these reporting requirements, and will be distributed directly to District Chairs. To answer questions from Adjudicators, state offices may wish to create a packet of information.

Linda Weygant · Answer

Devonte Dinkins - it depends on the type of entity you are.  Individual?  LLC, S-corp, C-Corp?

Linda Weygant · Answer

The key point here is having a property management company.  There are two ways this could go.  If YOU are issuing the checks out of YOUR account, then you are required to follow the 1099 guidelines.

If, however, the property management issues the check out of its account - even though it is on your behalf - the property management needs to deal with the 1099 reporting and you are out of it.

The entities who need to be issued 1099-MISC forms to are those that receive more than $600 for services in the calendar year.  This includes if somebody issues you an invoice for a repair that includes both parts and labor on it.  You issue the 1099 for the total invoice amount - you do not break out the services separately from the parts.  It's up to the vendor to declare the parts as an expense.  Here are the entities that need a 1099:

1.  Individuals/Sole Proprietors

2.  LLCs (you don't know if they've elected taxation as a corp or as a partnership, so they all get one.

3.  Partnerships

4.  Professional corporations (most specifically, lawyers.  But also accountants, architects, etc.)

5.  Any entity you pay commercial rent to, regardless of whether they are an LLC/Corp, etc.

Additionally, you need to issue a 1099-INT to any of the above entity types if you paid them more than $10 in a calendar year for loan interest (late fees do not count).  For you folks getting private loans and hard money loans, you should be issuing these.

It is always better to issue a 1099 to an entity that didn't require one than to not issue one to an entity that did.

Devonte Dinkins · Answer

Single-Member LLC. Would happen to know if I should file sales and use tax, or just use tax as a property management company?

Devonte Dinkins · Answer

@Linda Weygant, Very Helpful. I will have my own management company for managing my properties, so I want to make sure I am operating correctly.  Any idea of how I should pay myself distributions each month from the management company? Will I need to fill out a 1099?

Peter MacKercher · Answer

Generally that threshold is any contracted services that exceed $600. If you're paying over that, then you'll need to 1099 them. What questions do you have about contractors, specifically?

Nicole A. · Answer

No, you do not issue a 1099 to any company (LLC, Corp, or any other type) regardless of how much or little you pay them.This rule is only for when you're paying individual people. You might run into some people who won't want you to issue the 1099 because that means they have to pay taxes on their income (like everyone else!). No under the table for them if the amount is $600 or more within one year.

Michael Boyer · Answer

As Derrick mentions, if they are incorporated, you are ok (just wave goodbye). If not, you have the 1099 at the threshold level.

Bear in mind what is going on here: The IRS wants to track the income of smaller contractors who may not report it.  This one may be honored too much in the breach than in the adherence, however.

Now, my other concern is that if your property manager does not know this, that is an issue. The idea of hiring out the management, is that they handle your vendors and the paper work. They should be all over this (or red flag there).

Second concern is that more organized contractors (a corp or entity) may be better choices for reasons like these (tax, billing, etc), but I do know getting good help at a reasonable price can be a challenge.

Devonte Dinkins · Answer

Thanks @Derrick Craig

@Nicole W.  Do I need to issue any type of forms if I use all licensed and insured companies? For example, ABC LLC replaces a hot water heater at $1300. Do I need to provide ABC with any type of form/documentation?

Hiring out Services, 1099's?

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