Yes, If you pay anyone over $600 you are required to. Landlords are not stuck to this requirement; however, anyone operating a business such as rehabbing must stick to this law.
If you fail to do so you may be subject to penalties. Always have the W-9 filled out before they begin work or before you give them a check.
Yes, If you pay anyone over $600 you are required to. Landlords are not stuck to this requirement; however, anyone operating a business such as rehabbing must stick to this law.
If you fail to do so you may be subject to penalties. Always have the W-9 filled out before they begin work or before you give them a check.
Like many items in the tax code the $600 threshold should be indexed for inflation, not sure how long it has been at that level, but it sure is easy to exceed it. The kid that cuts my grass makes more than $600 a year. I think the threshold should like $5,000.
Capital gains taxes should also be indexed for inflation, so that you only pay tax on the amount of gain that exceeds inflation for the period held.
@Steven Hamilton II
Like many items in the tax code the $600 threshold should be indexed for inflation, not sure how long it has been at that level, but it sure is easy to exceed it. The kid that cuts my grass makes more than $600 a year. I think the threshold should like $5,000.
Capital gains taxes should also be indexed for inflation, so that you only pay tax on the amount of gain that exceeds inflation for the period held.
@David Krulac
No, think about it many people could work just enough to earn 4500 and then quit.
If I work for walmart it doesn't matter if i quit after 3 hours. I still get a w-2
Good point. However, since it applies to rents now its a bunch more paperwork for me for which I receive no compensation. Forced works, no compensation, sounds like slavery.
Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
12y
Steven Hamilton nailed it and we 1099 all our contractors. Make sure you get that W-9 before you start paying people...you would be surprised at how hard they can be to get after the fact.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
Just to clog the thread, I get W9s from every contractor and 1099 every contractor, regardless of how much they're paid. I give my CPA a spreadsheet (that I generate through QuickBooks) each year, that contains a line for each contractor, including Name/Business Name, Address, SSN/TIN, Amount Paid. He takes care of the rest.
While collecting the W9s requires having a process in place (do it before you ever let a new contractor start a job), the annual process only takes me about 10 minutes (and is included in my CPAs annual fees).
@Steven Hamilton II
Good point. However, since it applies to rents now its a bunch more paperwork for me for which I receive no compensation. Forced works, no compensation, sounds like slavery.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
12y
I agree with @J Scott - I get a W9 from every one, but I only send a 1099 to those who aren't exempt (Corp tax status is exempt from getting 1099, but you can still send if you choose; i choose to save the postage).
At one point I was retaining an attorney for some work, and requested the W9 and explained that I would be sending a 1099 if billed for any amounts totaling above the threshold; that ended up keeping the bill below even though his actual time spent on that matter would have yielded an invoice that exceeded the threshold.
I see the errors of my ways. On the instructions for the 1099 misc, it says that the exemption is for rent received, but in the paragraph above it talks about trade or business for profit. I guess rentals are not a trade or business for profit as they are "passive".
But counter to that is that the IRS has not exempted rental income from the new 3.8% Obama care tax, which supposedly applies to trades and businesses.
So even within the IRC there is a contradiction as to whether rentals are a trade or business. I like your interpretation better. I can't tell you how many hours I wasted filling out 1099s. Sure I want everybody to pay their taxes, lord knows I pay at least my fair share.
@Steven Hamilton II
I see the errors of my ways. On the instructions for the 1099 misc, it says that the exemption is for rent received, but in the paragraph above it talks about trade or business for profit. I guess rentals are not a trade or business for profit as they are "passive".
But counter to that is that the IRS has not exempted rental income from the new 3.8% Obama care tax, which supposedly applies to trades and businesses.
So even within the IRC there is a contradiction as to whether rentals are a trade or business. I like your interpretation better. I can't tell you how many hours I wasted filling out 1099s. Sure I want everybody to pay their taxes, lord knows I pay at least my fair share.
Landlords were specifically deemed to NOT have to 1099. Now if you are a real estate professional and landlording IS your trade or business, you may be "required" however, it does not tend to happen.
Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
12y
I will 1099 anyone that does work for me above the $600 regardless of what they work on be it a rental or a flip. Makes it easier to track in case someone happens to work on both.
It also seems like a gray area to me if they do rehabs on a rental so treat them like any other contractor.
I will 1099 anyone that does work for me above the $600 regardless of what they work on be it a rental or a flip. Makes it easier to track in case someone happens to work on both.
It also seems like a gray area to me if they do rehabs on a rental so treat them like any other contractor.
If you do everything in your personal name then it will suffice; however, if they do work for separate entities than it is a separate issue.
I will 1099 anyone that does work for me above the $600 regardless of what they work on be it a rental or a flip. Makes it easier to track in case someone happens to work on both.
It also seems like a gray area to me if they do rehabs on a rental so treat them like any other contractor.
If you do everything in your personal name then it will suffice; however, if they do work for separate entities than it is a separate issue.
I have not had anyone do work for more than 1 entity at this point.
I don't think it would be an issue for me though I assume I will get some WTF looks when I say I need them to fill out another W9 because the check I give them is from a different business.
Probably not. They will probably be relieved that it is not going toward that $600.
I tend to find most contractors don't like to fill out forms. Not that they won't but aren't fans of it.
I generally don't even ask for them until they are going to exceed $600 to avoid the headache. Like a guy did ~$160 job in one of my rentals today. First work he has done for us in 2013 and I have no reason to think he will do anything else. Not bothering to get a W9.
I have not had anyone do work for more than 1 entity at this point.
I don't think it would be an issue for me though I assume I will get some WTF looks when I say I need them to fill out another W9 because the check I give them is from a different business.
@Shaun Reilly - you don't need to get a separate W9 for each entity you control; the W9 allows for the recipient of the W9 to be left blank. Just tell them to leave that section blank and you can use the same form for every entity.
I have not had anyone do work for more than 1 entity at this point.
I don't think it would be an issue for me though I assume I will get some WTF looks when I say I need them to fill out another W9 because the check I give them is from a different business.
@Shaun Reilly - you don't need to get a separate W9 for each entity you control; the W9 allows for the recipient of the W9 to be left blank. Just tell them to leave that section blank and you can use the same form for every entity.
Oh yeah that is a good point. As I said I have not had any crossover between entities at this point (Generally geographicially dispersed enough) but that makes sense.
Landlords were specifically deemed to NOT have to 1099. Now if you are a real estate professional and landlording IS your trade or business, you may be "required" however, it does not tend to happen.
Can't landlording be considered your business even if you are not a real estate professional?
I've been reading Stephen Fishman's "Every Landlord's Tax Deduction Guide." In it, he says there are four tax categories for landlords: business owner, real estate investor, dealer in real estate and not-for-profit (p. 38).
Most landlords are business owners provided they work at it "regularly, systematically, and continuously" (p. 39).
He goes on to say that if you want to make sure you qualify as a business, you should issue 1099-MISC to all independent contractors to whom you pay more than $600/year (p. 42).
So my understanding is that if you are a landlord who falls into the category of business owner (which does not require you to be a real estate professional), you should file 1099-MISC.
Landlords were specifically deemed to NOT have to 1099. Now if you are a real estate professional and landlording IS your trade or business, you may be "required" however, it does not tend to happen.
Can't landlording be considered your business even if you are not a real estate professional?
I've been reading Stephen Fishman's "Every Landlord's Tax Deduction Guide." In it, he says there are four tax categories for landlords: business owner, real estate investor, dealer in real estate and not-for-profit (p. 38).
Most landlords are business owners provided they work at it "regularly, systematically, and continuously" (p. 39).
He goes on to say that if you want to make sure you qualify as a business, you should issue 1099-MISC to all independent contractors to whom you pay more than $600/year (p. 42).
So my understanding is that if you are a landlord who falls into the category of business owner (which does not require you to be a real estate professional), you should file 1099-MISC.
Can anyone please clarify?
@Paul C,
I highly recommend that you do issue 1099s. I am just simply stating you are not required to issue them. I personally issue them to everyone who I paid anything.
The more deductions on your return that have solid proof(1099 or other reporting to the IRS) the easier is it to prove. The less likely it will be audited as well.
So unless you are a real estate professional, I wouldn't worry about it.
Rental Property Investor · Henderson, NV · Member since 2013 · 96 posts · 33 votes
12y
Thanks @Steven Hamilton II . I understand what you're saying and think it's good advice. I'm going to issue them this year, but I did not do it last year.
Is my belief that you can be considered a business owner without being a real estate professional correct?
If you are a business owner (but not a real estate professional), then do you HAVE to issue 1099s? I know you're saying you would issue them regardless of whether it's required or not, but I just want to understand if it's required in the scenario where you're a business but not a real estate professional.