Taxes can be daunting if not outright confusing and understanding landlord 1099 requirements is no exception. If you’re a property management company or a professional landlord you may have systems and processes in place — but as an independent landlord filing for the first time, you may have 1099 questions similar to those I recently received.
It all started with a phone call from a relative who rents out a property in another state. They went online and found a few blog articles for 1099s but they seemed to be geared toward full time landlords with large property portfolios or for property management companies. Weeding through that advice left them with more questions than answers.
If you are in the same boat and need to unravel 1099s, then take a look below at some commonly asked questions as you prepare for the tax season ahead.
Note: This article is provided for general informational purposes only as an overview for private landlords and is not to be considered a substitute for seeking advice from your qualified financial advisor or researching federal and state regulations.
What is a 1099
We are all familiar with the W2 form that employers send their employees every year. That information is forwarded to the IRS and the employee uses the W2 information to complete their personal tax return.
But for those that work for themselves, either as an independent contractor, vendor, or small business owner the Internal Revenue Service (IRS) created 1099 forms to document sources of income outside the traditional employee/employer relationship. Those forms are also transmitted to the IRS to provide documentation of income from various sources that might not otherwise be reported.
Independent contractors, vendors, and some small businesses need to receive 1099s showing the income received for the services they offer so they can complete their personal and business tax returns.
There are around 20 different types of 1099s but for landlords the ones you’ll need to use most often are:
1099 MISC form
You’ll need to send a 1099-MISC to document attorney fees and rent (such as office or commercial space) paid in total of $600 or more in the year. There are specific boxes on the 1099 MISC form for the type of payment (for example box 1 is to document total rent paid).
General 1099 Misc information can be found here: IRS | About Form 1099-MISC, Miscellaneous Income
Specific information regarding attorney fees, rents, vendors, etc can be found here: IRS | Instructions for Forms 1099-MISC and 1099-NEC
1099 NEC form
NEC stands for Non-Employee Compensation, which means you’ll be sending out a completed 1099-NEC form to persons or businesses that you paid at least $600 to in that year for services performed by non-employees such as vendors.
More information can be found here: IRS | About Form 1099-NEC, Nonemployee Compensation
Who needs to receive a 1099
First, understand what is meant by Payee on the 1099 form. As a landlord, the Payee is someone you’ve paid for services such as:
- Pest control
- Appliance repair
- Snow removal
- Electrical work
- Attorney fees
Secondly, check your records and look at who you’ve paid $600 or more (in total payments) during the calendar year.
Did you know that some businesses are exempt from receiving 1099s based on their business status and other criteria? How do you know if a business, vendor, professional, or independent contractor is or isn’t exempt from receiving a 1099? Great question! The answer can be found by requesting each to provide you with a completed W9.
What is a W9
The W9 fillable form is something they (the vendor, independent contractor, professional, etc) complete. It allows them to check a box to indicate if they are, or are not, exempt for receiving a 1099.
- If exempt, you can retain the W9 in your records in the event of an audit as proof you were not required to send them a 1099.
- If they are not exempt, the W9 form provides you all the details you’ll need to complete and send the appropriate 1099.
It is important to ask every vendor, independent contractor, business, and professional to submit a W9 to you prior to you completing your 1099s. The W9 gives them the opportunity to provide you with important information for accuracy such as their official business name (or name under which they file taxes) and current address.
When you require W9s you can be confident you have accurate information, have something on file for audits, and streamline your 1099 process.
How do you fill out a 1099 tax form
Specifically, you can use any of the three links to the IRS above to find information on how to fill out a 1099 tax form. But what gets tricky, as my relative found out, is the stand-alone 1099 form software needed to complete the forms — find out too late that the software isn’t intuitive and unfortunately non-refundable once opened.
If you find yourself in that situation, the best piece of advice is to have the IRS links above open, have those W9s handy, and a list of the people you’ve paid at least $600 to for that year (and the total amount paid to each). Then, go slowly and confirm those details.
Not only can those stand-alone 1099 software products be complicated, they can also be very expensive when you add up the cost of the specialized forms, envelopes, and the software itself. Because of the complexity, some choose to hire an accountant or bookkeeper to process your 1099s but again, that can become very costly.
But as I shared with my relative, there is good news! There is a simpler way to meet your 1099 requirements as a landlord. Whether you rent out rooms in your home, have one or a few rental properties, or a large portfolio, you can take advantage of the 1099 integration within most landlord software programs.
A good landlord software not only has very inexpensive integrated 1099 form services (mailing, IRS electronic submissions, 1099 State filing, etc) but you’ll also have records handy for your other tax needs such as rental income received, Schedule E expense list, depreciation reports, etc. Not only that, many programs allow you to provide an accountant or bookkeeper access to those reports or you can create and email them directly from the software to your tax preparer.
Even if you do your own tax preparation, having those reports handy will make that process much smoother — not to mention, you’ll have tenant screening, leasing, and communication tools at your fingertips to simplify tenant turnover. It’s not too late to invest in landlord software to help you for this upcoming tax season and for the many to come.
Landlord 1099 Requirements
Landlords are required to send out 1099s when paying out $600 or more to certain individuals and businesses. If you fail to meet the 1099 requirements you may face severe fines and penalties.
Landlords should require all non-employees such as contractors, businesses, vendors, professionals, etc to return to them a completed W9 to keep on file.
You can find a current W9 form available here: IRS | About Form W-9, Request for Taxpayer Identification Number and Certification
Landlords must meet the filing and mailing deadlines to avoid penalties. Deadlines change yearly but often are due to be filed by or before the end of January following the year payments were made.
You do not need to file a specific 1099 if
a) That business is a corporation,
b) An LLC is taxed as a C or S corporation, or
c) The total payment for the year is less than $600.
If at any time you are uncertain about your obligations and requirements, seek out a tax professional for assistance.