Besides actually paying your taxes, one of the biggest tax related stresses for property managers involves 1099-MISC reporting. Property managers are required to issue a 1099-MISC tax form for any service provider or owner who receives more than $600 related to their rental business.
This tax season, the IRS requires everyone to provide a 1099-MISC to their recipients by Feb. 1, 2016 and to the IRS by March 31, 2016. The penalties for failing to file 1099s can be very expensive so it is important to understand your obligations when it comes to 1099 requirements for your rental business.
Why are 1099s necessary?
The IRS relies on 1099s to monitor income sources not recorded on a traditional W-2 form. W-2 forms report salaries and wages, and miscellaneous income is reported on a 1099 form. 1099s are an additional way for the IRS to capture an independent contractor’s income that might otherwise go unreported. While an independent contractor is required to honestly report all his earnings, the IRS relies on you to help reinforce the required income reporting information.
Who gets a 1099-MISC form?
- Owners – A property manager must use Form 1099-MISC to report rent paid over to the property owner in excess of $600 during the tax year.
- Independent Contractors – A property manager must use Form 1099-MISC to report funds in excess of $600 paid to any unincorporated vendor or service provider including:
- repair men
- Attorney fees to handle an eviction or collect unpaid rent (even if the legal services were provided by a corporation).
Basically, you must file a 1099-MISC form for anyone you paid more than $600 to in the course of a year that is NOT a corporation.
What information do I need to file a 1099?
For each individual you will file a 1099 for, you will need a:
- Tax ID Number – For individuals this is their social security number (SSN), and for businesses it’s their employer identification number (EIN).
- Address – For a copy of the 1099 to get sent to them, for their tax reporting requirements.
- Funds Paid – You will need to know the cumulative amount of money issued to the individual during the tax year.
Your owners’ and vendors’ tax ID number and address can be captured via a W-9 form. A W-9 form is an official IRS document used to request and certify a taxpayer’s identification number and address. It is always a good idea to require a vendor or owner to fill out a W-9 when you first engage in business with them so you do not have to scramble for this information come tax reporting time.
How do I file 1099s for my property management business?
1099s can be mailed or electronically filed with the IRS. If a business is submitting more than 250 1099 forms, they are required to do so electronically.
Property management software makes it easy for property managers to complete 1099s and meet your tax reporting requirements. Property management software should always have integrated accounting features that records owner and vendor payments made throughout the year and generates easy to read reports that summarize important tax reporting information. The right software will provide you with a way to file your reports online from your account (e-file) or print out a tax assistant report to give your CPA or use for manually filing 1099s.
When do property managers NOT need to file a 1099?
There are a few exceptions to the 1099 requirements
- Exceptions regarding owner payments: 1099s need not be filed where the payee is a corporation. This means if a corporation owns the rental property, you do not need to submit a 1099 form regard payments made to the corporate owner.
- Expectations regarding vendor payments: The same holds true if you hire an incorporated business, instead of an unincorporated independent contractor, to perform maintenance, repair or other services on a client’s rentals.
These exception only apply to corporations, not to limited liability companies (which are very popular with both rental property owners and maintenance vendors).
What are 1099 requirements for rental owners?
If you self-manage your rental property you own, you may wonder about your 1099 requirements. Back in 2009, a clause in the Affordable Care Act required rental owners to report 1099-MISC income paid to service providers in relation to the rental property. In 2010, the clause was further clarified with the Small Business Jobs Act and the Health Care Reform Bill. BUT, by 2011 the requirement was repealed, making it not necessary for private landlords to file 1099s to vendors for work related to their own rental property.*
*The penalties for failing to file 1099 tax documents are high, so you should always speak with a tax professional who is familiar with rental real estate tax requirements if you have any questions or require further clarification.
Want to use Rentec Direct to electronically file your 1099 tax documents? It’s easy with the 1099 Tax Assistant and integrated e-file functions.