Do you always mandate all contractors to provide W9 on your BRRR?

Question

Good afternoon BP investors. I'm going through my first BRRR property and I was wondering if obtaining W9 from contractors during renovation is always a good strategy. I have conducted my due diligence (license and referral checks and current project inspection) on contractors that I'm about to hire just to find out that the plumber doesn't offer W9 to customers. They provide receipts but not W9. That makes me think if this should be a deal breaker or not. They provide quality job at very competitive price. Is current savings as valuable as long term tax benefits for equal amount of saving at present time?

Evan Polaski · Answer

Are you able to pay this contractor via credit card? If so, they do not need to provide a W-9, as they will be 1099'd through their processor (I know because I ran my own business and got them each year from processor), and you do not need to issue a 1099 (at least that's what my quickbooks tells me when I process my 1099s each year).

That being said, I would talk to your CPA about what you need to make sure you are covered. If you cannot issue a 1099, because you do not receive a W-9, my accountant had told me I need to withhold 25% of pay, and I believe you file something with the IRS stating you withheld taxes. Again, talk to your CPA.

Filipe Pereira · Answer

@Michael Ndjondo makadi the correlation between competitive price and not providing their w9 is that if they aren't providing their w9 they're not being "forced' to pay income tax, so that's a savings to them. A w9 lets people report to the IRS someone's income through their EIN or SSN + a 1099.

A contractor who doesn't provide a w9 is less valuable to me than one who does because I run a property management company in CT and have to keep things above board, so to speak. You are free to do whatever you want, but if you don't issue a 1099 based off the w9 for anything over $600 that you write off, you're opening yourself up to a can of worms once you get to scale.

Not all renovation costs have to be capitalized over a long period. Much of it can be done immediately and in the same tax year.

Ahad Ali · Answer

Typically if you are paying a business such as a Corporation or LLC, a W9 and subsequent 1099 filing are not required. If you are paying an individual contractor for his/her service then it is required to file if you pay them over $600 throughout the year. Bare in mind the IRS has changed the forms required to file for contractor payments to the 1099-NEC, Non-Employee Compensation instead of the previous 1099-Misc.

Given the contractor is not providing you the W9 and if you are paying them above the $600 threshold, I would suggest speaking to a CPA in further detail regarding this situation to see what can and should be done to cover your grounds.

Wayne Brooks · Answer

If the contractor is an LLC or Corp, a W-9 and a 1099 are not required. But, the W-9 shows evidence that they Are an entity.

Dan V. · Answer

Ideally, you MUST require each contractor to submit W9, regardless of the amount and method of payment, as part of your onboarding process. You may tell them that your "accounts payable" department will not process the payment until they have W-9 on file. But if it's just a one-time quick job and you will not pay $600 or more, then no need to ask for it.

Drew Sygit · Answer

Many contractors try to avoid providing a W-9, even though we make it clear upfront we require one.

So, what we do is withhold final payment until they provide one. It's NOT unethical, because we show them previous emails where we told them we require a W-9.

Filipe Pereira · Answer

I followed everything until "They provide receipts but not W9. That makes me think if this should be a deal breaker or not. They provide quality job at very competitive price. Is current savings as valuable as long term tax benefits for equal amount of saving at present time?"

So basically they are fine with doing the work, and getting paid for the work, but not OK with paying taxes on the income? That doesn't sound promising....

Unfortunately for them the IRS has clear procedures on how to file a 1099 for a contractor who doesn't want to provide their W9, so they are really just shooting themselves in the foot.

Jonathan R McLaughlin · Answer

@Michael Ndjondo makadi please check but I believe that if you send them the form and ask for it (document) you have satisfied your obligation.

Michael Ndjondo makadi · Answer

@Wayne Brooks and @Ahad Ali. Thanks both for the information. Actually one contracting company is incorporated whereas the other G.C is organized as a simple sole proprietorship. I was able to confirm the corporation status of the latter. So I think I have the make I receive aW9 from the former.

@dan

@Dan V. Thanks for your input. Moving forward I'll incorporate the W9 requirement as part of my onboarding process.

@dan

@Dan V. Thanks for your input. Moving forward I'll incorporate the W9 requirement as part of my onboarding process.

Michael Ndjondo makadi · Answer

@Drew Sygit

Thanks for your input. This makes lots of sense. We’ve been talking with these contractors lately about this and the tendency is that they may be able to provide W9 after all. But I’ll make sure I have them before signing any contact if that’s the route I decide to take over paying through a credit card.

Do you always mandate all contractors to provide W9 on your BRRR?

Do you always mandate all contractors to provide W9 on your BRRR?

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