Newbie form 1099 contractor question--cash or credit?

Question

I would like a contractor to do some tree work on my first rental next week. The quote is $1900 cash or check. I just learned about filling out a form 1099 for contractor payments of over $600. It looks like I can avoid the form 1099 if I pay by credit card or Paypal, which I am tempted to do. However he will charge more in that case.

How much extra is it worth paying by credit card to avoid the form 1099? I also get 1.5% reward on my card and it's easier tracking credit card expenses.

Bill Crow · Answer

@Nathan Gomes

The 1099 takes about a minute to fill out. HOWEVER, the challenge will be that you need to get a W-9 from the contractor, which gives you their legal name, address and tax ID number for reporting the payment. If they are avoiding taxes, they won’t give you the info.

Tahra Wright · Answer

@Kyle J. Thanks for the feedback! I wasn't aware of that. I don't pay my vendors my credit card or PayPal but that's great to know.

@Nathan Gomes after running around like a chicken with my head cut off last year, I learned to collect all of the information I will need to complete a 1099 in the contract at the start of the job.

Dan V. · Answer

@Nathan Gomes If you have somebody handling your books, ask if they offer 1099 filing (usually they do) since bookkeeping usually handle the majority of work so it should cause you just a little extra. In my experience, the challenging part is gathering the tax info from the vendors so it's a good practice to make W-9 a standard requirement for all your contractor.

Software like QBO offers 1099 filing, so once you check the box in the vendor setup to track 1099 payments and enter the tax info, filing should be easier. Depending on the number of contractors, the filing fee usually ranges from $1-$5 per form plus the labor hours.

Kyle J. · Answer

It’s true that you don’t have to send 1099’s if paying by credit card or PayPal. Here’s some more reading on it:

Must You Send 1099 Forms to Contractors Paid Via PayPal or Credit Card?

George Blower · Answer

@Nathan Gomes

Welcome to Bigger Pockets. This is great place to connect with others.

Tahra Wright · Answer

@Nathan Gomes You should just double check that with your accountant. I have not heard of avoiding the 1099 by paying with a credit card. The 1099 is to report payments to a contractor for which they have to pay taxes. The only way for them to reflect less income is by a payment in cash, which is why they give you a discount. Not sure the same holds true for credit cards. But lmk!

Nathan Gesner · Answer

@Nathan Gomes that's correct because the credit card company or PayPal will report the payments to the IRS.

Nathan G. · Answer

Thanks for the replies.

My question simplified is--how much time and money do 1099s require to complete and file? I would prefer to avoid that and have the payment processor do the 1099-Ks. I'll ask an accountant later this week as well.

Newbie form 1099 contractor question--cash or credit?

Newbie form 1099 contractor question--cash or credit?

Most Popular Reply

8 Replies