Did you know that 1/3 of Americans file taxes at the last minute? If you own a rental property, waiting to file just isn't plausible.
Part of being a landlord or rental property owner is preparing for tax season ahead of time. You can start by learning about tax statements and 1099s.
Keep reading to learn more.
What Are IRS Forms 1099?
Form 1099 is used to report self-employed income earnings, including dividends and interest.
As a landlord, if you make payments to independent contractors for the services that they perform, you have to file Form 1099 to report the contractor's earnings.
The IRS will use this form to monitor miscellaneous income sources that aren't recorded on a traditional W-2 form. They will compare the contractor's reported income with Form 1099.
Landlords must file a 1099 form for any independent contractor that they pay more than $600 in a year.
When Should You File 1099 Forms?
Tax statements and 1099 forms vary by situation. For example, you might need to file a 1099 MISC form in certain instances.
You'll need to submit Form 1099-MISC for the following:
- Payment of attorney fees for evictions or the collection of unpaid rent
- Owner disbursements sent to your partners costing more than $600
- Healthcare and medical payments made during the tax year
There is also Form 1099-NEC. You'll need to fill out and file this form for these situations:
- COVID-related deep cleaning
- You paid an independent contractor such as a repair person, locksmith, or plumber
- Service providers such as laundry or dry cleaning
Lastly, Form 1099-K has to be filed for these circumstances:
- If you use a freelancing platform to manage client payments
- If you use an online credit card processor for rent payments
- If you receive funds through an online payment service platform
There are exceptions to filing forms 1099-MISC and 1099-NEC. For example, these aren't required tax forms if the purchases were made for goods instead of services.
Working with a rental management property company is the best way to prepare for tax season without hassle.
Information Needed to File a 1099 Form
You might be required to file more than one Form 1099. For each entity or individual that you file this form for, you'll need this information:
- A current address
- A Tax ID Number (TIN)
- Amount of funds paid
The TIN is a Social Security Number (SSN) for individuals and an Employer Identification Number (EIN) for businesses.
Most importantly, calculate the cumulative amount of money you paid to the company or individual over the tax year to ensure the number of funds paid is accurate.
As a general rule of thumb, you should require any vendor that you use to fill out a W-9 form when you start doing business with them. Ask for the updated W-9 form on an annual basis.
Tax Statements and 1099s: The More You Know
Tax statements and 1099s are important for landlords and rental property owners to understand, but they can be complex. If you don't know how to prepare for tax season, this guide is a good start.
For help with rental property accounting, taxes, and other essential property management tasks, contact us today!