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Rental Landlords: Filing A 1099-misc May Now Apply To Your Operations. Are You Collecting W-9s?

Rental Landlords: Filing A 1099-misc May Now Apply To Your Operations. Are You Collecting W-9s?

Whether you’re a landlord who owns multiple rental units or the owner of a single property that you lease as a source of revenue, there’s a good chance that you rely on the services of others to keep your properties maintained and in good repair. If any of those you rely on are independent operators, you need to get into the habit of asking them to fill out the Internal Revenue Service’s Form W-9, “Request for Taxpayer Identification Number and Certification,” the first time you use them, even if it’s just for a small job. The reason for this is that you’re required to submit that form any time you end up paying a contractor more than $600 over the course of the year – and it’s a lot easier to get that filled out right at the start than later.

There are a few reasons why it’s essential to start making this part of your contractor hiring process. First, you’ll need to submit IRS Form 1099 to qualify for any business deduction you want to take for having paid for labor and expenses. This is true for all types of payments, including some expenses for medical and health care services and attorneys’ fees, though not for payments made to a corporation. For landlords, the most common problem experienced when you don’t ask for the form to be filled out first happens when you hire a person to perform some repair or service, pay him a small fee that falls short of the $600 requirement, then need him again later in the year. If on that second (or third or beyond) payment you may go over the threshold without realizing it until it’s time to pay your taxes, and by then it’s too late to get them to come back and give you the form — especially since many independent contractors prefer to skirt the need to report income. Asking for the W-9 up front not only makes your life easier but also gives you the opportunity to file the proper paperwork at the end of the year, avoiding the potential for being fined by the IRS. 

When you have a completed W-9 from a contractor, you have all the information that you need to file the 1099 form that the government provides. Even if the contractor filled it out incorrectly, your efforts at compliance protect you from being penalized, and by virtue of having asked for it the first time you used the individual, you will no longer need to worry about collecting the information. Though this has long been a requirement, it has become particularly important since the passage of the Tax Reform Act, which established a 20% pass-through deduction under Section 199A. That new rule specifically addresses the need for landlords to report payments to independent contractors to be treated as a trade or business – something that had not previously been required for rental revenues.  Though those who treat rentals as investments rather than businesses or trades do not need to worry about this requirement, it is still important for those who rent their properties out to understand the requirement, because failure to provide 1099-MISC forms for each service provider by the due date of August 1, 2019, can result in a $100 fine for each.

If you do use independent contractors and pay them more than the $600 threshold, you are required to file the 1099-MISC on either a special optically scannable form or electronically. The change to these requirements can be confusing, so if you have questions don’t hesitate to contact a tax professional for clarification. Even more importantly, check right now to make sure that you are familiar with the W-9 form and start handing it out to every independent service provider that you use moving forward into the new tax year.

Gordon W. McNamee, CPA writes for TaxBuzz, a tax news and advice website. Reach him and his team at [email protected] 

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

GORDON W. MCNAMEE, CPA
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