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Old 12-05-2013, 03:25 PM
 
Location: Chicago, IL
255 posts, read 495,733 times
Reputation: 243

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We own a small apartment building, and I read a couple of years ago that the IRS was going to require landlords to submit 1099s for payments over $600. So, my partner hired some bozo electrician a few weeks ago, and the bill came to $1750. I checked with my accountant, and sure enough, I've got to issue a 1099 for this. Apparently, I'm supposed to do this any time I pay anyone in excess of $600 in a calendar year. You'd think one of our many tax preparer's would have mentioned this in the past few decades, but it's only coming up now.

My head is now swimming. This would be my first transaction of this size with an individual contractor, but not my first with other entities this year. I paid $4000 to a deck cleaning company, $8000 to the insurance company, a few grand to the electric company, etc. Do I have to submit 1099s for each of them? I'm very confused.
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Old 12-05-2013, 03:31 PM
 
Location: Northeast
1,886 posts, read 1,923,802 times
Reputation: 3757
I'm no accountant but there must be a way around it. I do side work for a small clinical practice over the years, and on average
make about 4000k a year. They make the checks out to me, in my name and i cash em. I've never received a 1099 from them..
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Old 12-05-2013, 03:52 PM
 
Location: Chicago, IL
255 posts, read 495,733 times
Reputation: 243
I've been doing a bit more research, and apparently any time you pay anybody more than $600 (say you have someone paint your house for $900) you are supposed to fill these things out. This applies to not just businesses, but individual taxpayers as well. Do people actually do this?
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Old 12-05-2013, 04:04 PM
Status: "But in the aggregate..." (set 28 days ago)
 
Location: The Triad (NC)
31,333 posts, read 69,492,784 times
Reputation: 37339
Quote:
Originally Posted by pidgeon92 View Post
...the IRS was going to require (all businesses) to submit 1099s for payments (to individuals)
over $600 (that you want to deduct as business expenses).

So, my partner hired some bozo electrician a few weeks ago, and the bill came to $1750.
Did this bozo electrician give you an invoice?

iow... is this bozo just some jack leg hanging around at Home Depot...
or are you contracting with legitimate businesses?

Quote:
Do I have to submit 1099s for each of them? I'm very confused.
If you're still unclear you need a different accountant too.

Last edited by MrRational; 12-05-2013 at 04:14 PM..
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Old 12-05-2013, 05:01 PM
 
Location: Chicago, IL
255 posts, read 495,733 times
Reputation: 243
Quote:
Originally Posted by MrRational View Post
Did this bozo electrician give you an invoice?

iow... is this bozo just some jack leg hanging around at Home Depot...
or are you contracting with legitimate businesses?
He's more of the Eastern European variety, and it appears he is accustomed to doing work for cash. Apparently he's scratched out some sort of invoice and gave it to my partner, who is the one who hired him. I haven't seen it yet, but I don't hold out a lot of hope.

We've had this building for twenty years, and my dad owned buildings prior to this. Over these past four decades, we've had five different CPAs doing our taxes. Not one ever mentioned issuing 1099s. Now I'm wondering what other things I should be doing that I don't know about.
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Old 12-05-2013, 05:34 PM
Status: "But in the aggregate..." (set 28 days ago)
 
Location: The Triad (NC)
31,333 posts, read 69,492,784 times
Reputation: 37339
Quote:
Originally Posted by pidgeon92 View Post
He's more of the Eastern European variety and it appears he is accustomed to doing work for cash.
You have a problem.
Without the 1099 to him (along with a W-9 with his data on file) you can't deduct the expense.

Quote:
We've had this building for twenty years...had five different CPAs doing our taxes.
Not one ever mentioned issuing 1099s.
The 1099 reporting rules are NOT a new thing.
The specifics have varied... but the basic rule has been around for some time.
(it's about reporting income and tracking under the table cash)

Find an active property owners group. Join them.
Get the name of a couple of LL oriented CPA's and attorneys.

And get some "W-9" forms and some blank 1099-misc forms too.
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Old 12-05-2013, 08:14 PM
 
Location: Atlantis
3,017 posts, read 3,484,259 times
Reputation: 8849
Quote:
Originally Posted by pidgeon92 View Post
He's more of the Eastern European variety, and it appears he is accustomed to doing work for cash. Apparently he's scratched out some sort of invoice and gave it to my partner, who is the one who hired him. I haven't seen it yet, but I don't hold out a lot of hope.

We've had this building for twenty years, and my dad owned buildings prior to this. Over these past four decades, we've had five different CPAs doing our taxes. Not one ever mentioned issuing 1099s. Now I'm wondering what other things I should be doing that I don't know about.

'Cash' . . . . . . . . $1,700 in cash?

You have owned a building for twenty years and have got into the habit of paying for work in the form of cash. Aside from the 1099 issue, the whole cash thing is your first problem. The IRS requires 1099 forms be filed so that building owners that have been sitting on a property for 20 years do not attempt to expense over $1,700 in alleged work that was done but have absolutely no record of it except for 'some sort of invoice' that was 'scratched out'. A business has to collect and then pay sales tax to the state that it operates in and it is more than likely that he did not do that - and as a contractor, he has to pay federal taxes as well as FICA taxes. Not to mention that he was doing electrical work which inherently requires a trade license.

But in an attempt to save money, you ignored everything that I just mentioned. Once again - the 1099 issue is the least of what you should be concerned with and focused on right now.

And side note: If he is just some guy that plays around doing electrical work and does not have a business license (and/or you did not write a check to his business) then under IRS code - if and when he does not pay his taxes, you can be assessed for them.
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Old 12-06-2013, 08:57 AM
Status: "Enjoying the winter" (set 6 days ago)
 
Location: East of Seattle since 1992, originally from SF Bay Area
33,890 posts, read 61,679,142 times
Reputation: 37773
Most of us now automatically do a 1099 for any new vendor, just in case the total for the year goes over $600. The IRS will cross-reference and only allow you to deduct an expense for that amount if there is a corresponding 1099 income for the vendor. Likewise, if you do a 1099 the vendor will be in trouble if they don't claim the income. The only safe way around this is to barter/trade services/goods but even that is illegal, just not as likely to get caught.
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Old 12-06-2013, 10:23 AM
 
Location: Boise, ID
8,047 posts, read 25,655,838 times
Reputation: 9384
Technically, my understanding is that a property manager also has to 1099 the property owners they manage for. We started doing this 2 years ago on the instruction of our accountant. We already did 1099s for work done in excess of $600 for YEARS before that, but that was because we also have a construction company, so we were used to 1099ing our crews for that.

You don't have to send a 1099 if the company is incorporated, unless they ask you to (which means no 1099 for major utility companies, insurance companies, etc), and you don't have to give them to stores where you just walk in, make a purchase, and walk out (Lowe's, Home Depot, grocery stores, etc, most of which will be incorporated anyway), but for everyone else you pay more than $600 to, yes you have to 1099 them. That means before you give them their money, you collect a W-9 from them. But you should already be getting proof of liability insurance and for any major work, getting a signed lien waiver, so one more paper isn't that big of a deal. Cash is ok in my opinion, as long as you have an invoice that matches it. The only problem is that a cash payment is unlikely to be in your system as an expense, which makes it harder to track (and therefore harder to pick the expense up on your taxes as a write off).

As we manage about 150 properties, we have quite a few people who do over $600 worth of work for us each year. Many are incorporated, but last year, I think we did about 80 1099s for that business. Around 55 owners, and around 25 contractors (plumbers, electricians, HVAC guys, drywallers, painters, landscapers, roofers, cleaning people, garage door repair, appliance repair, attorneys, accountants, etc). If your records are kept in a computer and you get your 1099s up front, it goes pretty quickly. We do them all in about 2 days.

Watch your deadlines, you have to send them out by the end of January and give everyone a chance to look for errors. You then have to send the final round to the IRS/state/local/etc by the end of February.
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Old 12-06-2013, 07:46 PM
 
Location: Waiting for a streetcar
1,137 posts, read 1,244,614 times
Reputation: 1120
People should just read MrRational's post above. If that's not enough, here is some further quasi-useful info...

Should Landlords be Filing 1099's for Service Providers?
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