Discussion:Must a landlord prepare 1099-Misc?
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Discussion Forum Index --> Tax Questions --> Must a landlord prepare 1099-Misc?
| 2 January 2009 | |
| Client A has three rental houses. Paid lanscaping service $700. Is he in a trade or business, and must he prepare a 1099-MISC? I always thought no, rentals are not T or B for this purpose, so he doesn't have to file.
Client B has an apartment building, 16 units. Paid a manager (W-2) and paid a landscaping service. I think they are in a trade or business, must do 1099s. But does it hinge on how active the owner is, or what's the distinction between 3 rentals/non-T or B, and active T or B? | |
| 3 January 2009 | |
| Rentals are considered a trade or business for most purposes except the SE tax. If not Sec. 162, what would be the justification of virtually all rental expense deductions except property tax?
Even if I'm wrong, what's the downside of filing 1099s? The existence or absence of 1099s does not determine taxability of revenue received. If one assumes that all one's service providers will do their best to properly report their income, what harm is done by filing 1099s? The upside is that the business owner is protected against penalties. -- Larry Hess, CPA | Albuquerque, NM | |
| 3 January 2009 | |
| Thanks. Mostly it's just the hassle - do I pester my clients to get more info for all their service providers? Especially the handyman who they paid, and now they have no idea how to get ahold of again. I don't want to tell them they have to do something if they really aren't required to. | |
| 3 January 2009 | |
| That's a common problem. The business is required to have the service provider's name, TIN and address before making a payment or withhold 30% of what is owed. It should be understood between the business and worker that a W-9 will be required before the business can make a payment - or else backup withholding will be done. -- Larry Hess, CPA | Albuquerque, NM | |
| 3 January 2009 | |
| 1099's are not really required if the taxpayer is engaged in only Sec. 212 investment activities. Thus, a landlord who owns only 2 or 3 rentals is probably not engaged in a trade or business. | |
| 3 January 2009 | |
| Whether rentals are a trade or business or investment activity is an ongoing debate. For example, when the "investor" wants to deduct the costs of attending seminars they are quite ready to use Reg. 162 in view of the Sec. 163 prohibitions. So I see rentals as a cake-and-eat-it-too proposition. -- Larry Hess, CPA | Albuquerque, NM | |
Harry Boscoe (talk|edits) said: | 3 January 2009 |
| I'm sooo lost now. Larry, do you mean that an investor would be ready to claim to be under IRC Section 162 [as if in a trade or business] in light of the Section 274 prohibitions [against deduction of seminar expenses under IRC Section 212]?
Maybe a PBR will help me understand... Nope, didn't help. | |
| 3 January 2009 | |
| That's what I mean. And I understand that there are seminar promoters who assert just that argument. ~ | |
Southparkcpa (talk|edits) said: | 3 January 2009 |
| In a few audits lately, the IRS has in fact checked to see if 1099's were filed and are threatening to disallow the deduction as a personal expenditure. Accordingly, I am taking the position with ALL clients that if you write a check to an individual, give them a W9 and send them a 1099.
A THOUGHT ......any BIG company will not issue you a check without you filling out a vendor profile list, W9 etc.... because they do it right. So should we. I make it very clear to clients that if they write checks to "Johnny Bravo" because he wants it paid to him not his company, you will be held as participating in a fraud and the deduction disallowed. If IBM won't do it, why would you. I then tell the client you tell me who to 1099, and how much. I do NOT do the search. I can help but the ultimate reponsibility is the clients. | |
Harry Boscoe (talk|edits) said: | 3 January 2009 |
| "In a few audits lately, the IRS has in fact checked to see if 1099's were filed and are threatening to disallow the deduction as a personal expenditure."
What else is happening in these audits? If IRS agents are "...threatening to disallow the deduction as a personal expenditure" because there's not a 1099, I think they may have been smoking something. I've been preaching for years that the income tax deduction and the 1099 reporting are two very separate things. Please tell me these agents don't know what they're doing. Now that, I would understand. PBR anyone? | |
Harry Boscoe (talk|edits) said: | 3 January 2009 |
| I think this is still the question: In deciding whether 1099s are required, at what point does rental activity become a trade or business? An interesting thing turned up when I - just now - read IRS's instructions for preparing and filing Form 1099. In those instructions it says: "Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business." [emphasis added] The way I read this, the IRS is telling us that they *don't* want 1099s from us if we're not in trade or business, indeed, they are telling us not to file them. [Very interesting, but the regulations don't read this way....]
So, if I allow myself to be a little anal-obsessive, we practitioners *have to* know what's a trade or business and what's *not* a trade or business, for our clients' 1099s, because we have been instructed by the IRS *not* to file 1099s unless it's reporting payments made in the course of a trade or business. Again, what's the cutoff for rental activity *not* to be a trade or business? It looks to me like we're supposed to know this, according to IRS instructions... :-) | |
| 3 January 2009 | |
| If the landscaper is a corp, then no 1099. Only required for unincorp businesses and attorneys. | |
Harry Boscoe (talk|edits) said: | 3 January 2009 |
| "Only required for unincorporated businesses and attorneys."
But what about health care/medical provider corporations like incorporated doctors? They're required to be 1099ed also! | |
| 5 January 2009 | |
| I agree Harry, that is the question. Section 62(a) differentiates (1) Trade and Business Deductions from (4) Deductions Attributable to Rents and Royalties. The conclusion could be that all rentals are therefore not T or B. I think that conclusion is wrong, though I can't say why. So I'm still looking for guidance about how to determine when you cross the threshold into being in a T or B. | |
| 5 January 2009 | |
| Sometimes it isn't what is required for IRS purposes but what is good records keeping practice. Whether or not a 1099 is required, whenever I have work done, even personal home repairs that will exceed $600. I always get the name address SSN of the worker and in many cases send a 1099 to be sure that they are declaring their income. I definately would do it for a rental as additional documentation of the expense.taxea | |
| 5 January 2009 | |
| Laura, I suggest that, despite what some IRS rules might indicate, it is not our (tax pros) job to police the tax system. In fact, We are advocates for our clients so I think ensuring that the people we do business with report their income casts a bad light on our services. I see no purpose being served by filing 1099s where they are clearly not required, such as when we as individuals purchase services for non-business purposes. -- Larry Hess, CPA | Albuquerque, NM | |
| 6 January 2009 | |
| The word "police" is the operative word, Larry. As in police state.
I think one thing the IRS did not take into account when they started this: too much information is just as useless as too little. The NSA is probably finding the same thing out in its' domestic bugging operation. What I would like to see, if nothing else, is a hundred dollar penalty for issuing an unnecessary 1099, and a thousand dollar penalty if it can be shown that the 1099 was both unnecessary and done to intentionally cause harm or harassment to the issuee/payee. I've actually heard the words used thusly "1099 him"!, stated with mal-intent. I suppose this is what the 3 Musketeers would say nowdays, instead of "en garde". | |
| 6 January 2009 | |
| The Tax Court says that an investor with as few as 6 rental properties can be considered to be engaged in a trade or business. | |
| 6 January 2009 | |
| 2 years ago, I started preparing Forms 1099 for my rental property clients who had more than 2 properties. No one minded - in fact, they rather liked the idea. It is tedious work, but I charge full speed and my clients don't even blink at the charge. | |
| 6 January 2009 | |
| Larry as an advocate for my clients I am a firm believer in "document everything" as far as records go. On the personal side, as a taxpayer, you may not mind having to pay other peoples taxes but, I will do whatever I can to lessen my tax burden. taxea | |
| 7 January 2009 | |
| As practitioners covered by Circular 230 CPAs & EAs are held to a higher standard than ordinary people. I would be very careful about filing 1099s.in unwarranted circumstances. | |
| 7 January 2009 | |
| Explain to me what is unwarranted about issuing a 1099 to a worker who does work on my personal property if I paid him 600. plus? He is required by law to declare all of his income. I'm just helping him stay legal. taxea | |
| 7 January 2009 | |
| The last time I looked the instructions for form 1099-Misc state that the form should be used only to report payments made in the course of your trade or business. That is why you don't send them for work done on your personal use property. | |
Harry Boscoe (talk|edits) said: | 7 January 2009 |
| I find the suggestion (from tax professionals in this thread) that I should even consider the possibility of sending my *mechanic* a 1099 reporting the payments I made to him during the past calendar year for working on my personal automobile {yes, it was *way* over $600} totally preposterous!!!
It's so preposterous that I'm gonna drink a beer... A PBR, to be sure. Oh, OK, I woulda drunk the beer anyway, but sending my mechanic a 1099 *is* absolutely totally out of the question, isn't it? Does anybody agree with me? About the 1099, not about the beer...!! | |
| January 7, 2009 | |
| Harry, I agree - on both counts. Altho I'm probably going for either wine or tequila. I tell my clients that I DO NOT work for the IRS, I work for them.....to issue F 1099's just to make sure that mechanic doesn't get away with not reporting the income smacks too much of doing the IRS's job for them. Not my cup of tea (or glass of wine). | |
| 8 January 2009 | |
| I am not talking about people who own businesses and provide invoices and receipts. I am talking about those who tend to take payment in cash and treating it as "under the table, therefore unreported income".
Many of these people are sole-proprietors with business names and a state business license. Or how about people who rental part of their home or have a rental. Do you have any idea how many of them don't claim the rental income. taxea | |
| 8 January 2009 | |
| Laura, I you are absolutely, unarguably right about the tax evaders. They are a major reason we have the "tax gap." But I think you're wrong about the way you go about policing them. I wonder if your law enforcement background is just too strong to see my point. Maybe you should have joined the IRS CID or TIGTA instead of being a tax return preparer. -- Larry Hess, CPA | Albuquerque, NM | |
Death&Taxes (talk|edits) said: | 8 January 2009 |
| Back in the snow season of the 80's, am apocryphal story went around my town about a doctor, I believe, who would give a 1099 to his computer specialist.....only problem was that the guy was his coke dealer and the 1099 was more or less payment for his nosedrops. Supposedly, this form helped legitimize the computer store, which did little business.
I believe the story was in a book at that time about one white collar dealer who went to jail, but I can't provide a reference. | |
| 8 January 2009 | |
| Larry, perhaps my law enforcement background does influence my judgement or maybe it is just my low tolerance for criminals or my due diligence to my clients. I don't cheat when I prepare taxes...I don't knowingly encourage my clients to cheat and I choose to prevent others from cheating when I have any control over the situation. I don't work for the IRS. I work for my rights and my right to not to have to pay the taxes of the cheaters.
I don't go around turning in every "under the counter worker" to the IRS nor will I do their returns when I have a reasonable belief that they have not declared all of their income. I do explain the consequences of their actions and walk away if they choose not to comply. I see nothing wrong with suggesting that a 1099 be issued when a client pays in advance (dumb move) thousands of dollars to a worker who walks away with the money and doesn't do the work. I realize this is a crime in many states...but it is considered a civil matter in Hawaii. Even were criminal charges filed and the crook convicted there is never a guarantee that restitution will be part of the case. If noone else can get this guy, why shouldn't the IRS have a crack at him? Laura | |
Taxcurmudgeon (talk|edits) said: | 8 January 2009 |
| It has been interesting reading different points of view on the subject of whether and how to report possible tax cheats. It seems to me that someone who wants to help insure that what they pay to providers of services for non-business consumption can choose to do business only with someone whom they believe is honest and diligent about reporting their income. They can also choose not pay in cash. The cheats will wonder why they don't get the business; and, if they learn the answer will have some incentive for changing their ways.
This reminds me of the homeowner who hires an unlicensed contractor to do remodeling on their home. If the homeowner insists on only hiring licensed contractors the unlicensed ones may see the benefit in becoming licensed. | |
| January 8, 2009 | |
| You bring up a good point, Taxcurmudgeon. This same kind of thing happens with day care providers. The ones who are legitimate are licensed, report their income and will provide clients with copies of receipts so they can claim the dependent care credit. Of course, they are more expensive than the ones who don't want to report their income and will not issue a receipt. | |
| 8 January 2009 | |
| Paying by check doesn't insure the income will be reported. I had a licensed roofer ask me to write the check to his personal name...of course I didn't.
This career field is notorious for "under the table" dealings. Being licensed doesn't necessarily insure disclosure. taxea | |
Taxcurmudgeon (talk|edits) said: | 8 January 2009 |
| If you know this about him, why do you do business with him? | |
