guide-to-1099s-taxes-landlords

Property Managers Guide to Tax Time and Sending 1099s to Landlords

Phil Puccio

guide-to-1099s-taxes-landlords

Tax time can be stressful and confusing for everyone, including property owners and landlords. That said, not everyone is an expert, so it’s important to pay close attention to essential tax documents and requirements. One of the most significant tax forms for landlords is 1099. If you have a management team, like Bay Property Management Group, you will receive a 1099 form to fill out each year. So, let’s go over the importance of sending 1099s to landlords during tax season. 

What is the Purpose of Tax Form 1099?

If you are unfamiliar with tax documents, you might not know the importance of form 1099. While most people are likely familiar with a W2 tax form, 1099 works a little differently. Remember that the IRS is extremely strict about tax compliance, and complying with a 1099 form is crucial. 

A 1099 tax form will alert the IRS about businesses and contractors earning income that should be subject to income tax. In other words, the IRS created 1099 forms to document any payment outside the traditional employee/employer connection. 

In other terms, 1099 forms are submitted to the IRS to document income from other sources that may not otherwise get reported. For example, contractors, vendors, or run small businesses must receive 1099’s to show proof of the income they received for the services they offer. 

Property Manager's Guide to Tax Time and Sending 1099s to Landlords

What if You Don’t File Form 1099?

If you’re wondering what happens when you don’t file 1099, you won’t want to learn from experience. Anyone who neglects to file a required tax form is bound to receive a tax or IRS audit notice. This means that the IRS will track you down and review your information to ensure everything is correct. 

If individuals fail to report income on tax form 1099, the IRS may issue an accuracy-related penalty, equal to 20% of unpaid fees. For example, if failure to comply causes an understatement of $5,000, penalty fees would equal $1,000. 

What Happens When Companies Fail to Meet the 1099 Deadline?

If businesses or companies miss the deadline or fail to issue 1099s to the necessary recipients, penalties are involved. That said, if a business ignores the deadline, penalties vary from $50 to $270 for each form. 

However, if a business intentionally fails to provide the correct tax forms, there’s a minimum penalty of $550 per form or 10% of the income reported on the form. So, it’s crucial to comply with all tax requirements to avoid legal trouble or cash penalties. 

There are several types of 1099 forms. However, the most common ones you’ll see among landlords and property managers are the 1099-MISC and the 1099-NEC. Now, let’s go over what these two forms mean and why they are crucial. 

What is a 1099-MISC Form?

A 1099-MISC is most typically used to report payments (if they equal over $600 annually) made to others throughout your trade or business. For example, a 1099-MISC reports miscellaneous expenses such as rent, prizes or awards, healthcare payments, and payments to an attorney. 

What is a 1099-NEC?

Anyone paid more than $600 in non-employment income should receive and fill out a 1099-NEC. However, keep in mind that many tax situations are circumstantial. So even if you haven’t made more than $600 in non-employment income during that tax year, you may still have to fill out 1099. 

Who Receives Form 1099?

To determine who is supposed to receive a 1099 form, it’s essential first to understand what is meant by “Payee.” In most circumstances, a Payee is someone you’ve paid in return for services such as:

  • Home painting
  • Plumbing work
  • Construction and landscaping
  • Inspections
  • Appliance repairs
  • Pest control services
  • Electrical work
  • Remodeling and renovations
  • Attorney fees
  • Bookkeeping
  • Locksmith

Pay attention and keep track of everyone you’ve paid over $600 to for services over the past year. Then, make sure they are sent a 1099 form. 

Keep in mind that some companies and businesses are exempt from filling out 1099s based on the status of their business. If you are unsure if your independent contractor or vendor is exempt from receiving 1099, have them fill out a W9. 

Property Manager's Guide to Tax Time and Sending 1099s to Landlords

What’s the Importance of a W9 Tax Form?

A W9 is a form that contractors, vendors, or other professionals complete indicating whether or not they must file form 1099. If they are exempt, it’s essential to keep this on record in case of an audit. However, if they are not exempt, this form will give you details regarding the proper 1099 form to send. 

Ask each independent contractor, vendor, or other business professional to submit a W9 before you complete your 1099 for the year. Then, when you require this tax form, you can ensure you have all the accurate information. Similarly, you have records on file in case of an audit and can simplify your tax filing process. 

Property Manager Responsibilities and Sending 1099s to Landlords

Property managers are responsible for sending 1099s to landlords or to any service provider or owner who earns more than $600 related to the rental business. To make things a little easier for busy landlords at the end of the year, property management companies are responsible for sending 1099s to landlords. 

According to the IRS, everyone who is regularly “engaged in the business of leasing or renting real estate for income or profit” must comply with the 1099 requirement. So, this means that property managers should issue 1099s to each independent contractor, vendor, or professional service whom they hired and paid more than $600 to within the year. 

What Information Do You Need for Form 1099?

For each 1099 filed, you’ll need certain information to ensure accuracy and compliance. Here are some requirements for each 1099 form:

  • Tax ID Number – A tax ID number refers to an individual’s social security number or a business’s employer identification number. 
  • Address – You’ll need the recipient’s address to send a copy of 1099 for tax reporting. 
  • Funds Paid – You need to know how much money was issued to the recipient for the year to ensure accuracy. 

How Can Property Management Benefit Your Rental Business?

Property Manager's Guide to Tax Time and Sending 1099s to Landlords

Tax season is stressful, especially if you are keeping track of your business expenses on your own. However, it doesn’t have to be so difficult. Consider hiring a property management company to handle the tedious day-to-day work necessary for your business to mitigate your stress. 

At Bay Property Management Group, our group of dedicated professionals works to provide a knowledgeable and experienced representation for your leasing and rental needs. We offer a full-service approach, including tenant screening, maintenance procedures, rent collection, eviction services, and everything in between. 

To make things easier for landlords at tax time, we also send out monthly and annual financial statements. This way, you can track your rental income and expenses for each specific property. Then, as required by law, we provide you with form 1099 at the end of the year. 

Whether you have one property or 100, BMG can help you manage every aspect while providing the greatest return on your investment. Contact us today to learn more about our property managers in Washington DC, Northern Virginia, Philadelphia, Baltimore and surrounding counties.

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