Do I Need To Issue A 1099 To My Handyman?
by Richard Anderson, CPA
I am frequently asked by clients and RHA readers about the current rules for issuing 1099s to contractors and casual laborers. In this article we will briefly discuss the current rules and point out some things to watch for as you get ready to file your tax forms for the 2013 tax year. The short answer is if you are an individual property owner with rental properties you don't have to issue a 1099 under the current law, but we will explain this in greater detail to give you some understanding of the issues involved.
The general rule is that if you are in a trade or business you need to issue a 1099-MISC to self-employed individuals if you pay them $600 or more in a given calendar year for services. Based on current rules this means you don't have to issue a 1099-MISC to corporations such Home Depot since they are not self-employed individuals.
If you are in a trade or business, which we will discuss next, you do have to issue a 1099-MISC to self-employed handymen, gardeners, and tax preparers such as myself. The rule is you need to get our Tax Identification Number or Social Security number by handing us a form W-9 to fill out and give back to you. This form will provide the information you will need to issue a 1099-MISC at the end of the year.
In terms of current rules, the real issue is whether you, as a rental property owner, are considered to be in a trade or business. In prior years it was understood that an individual property owner managing a small number of his or her own properties was not in a trade or business per IRS rules and did not have to issue a 1099-MISC to a contractor.
As part of the Small Business Jobs Act of 2010 there was a feature that changed the tax law to say that individual rental property owners were deemed to be in a trade or business and were required to start issuing 1099s for the 2011 tax year. Given that this created quite an uproar, there was political pressure to repeal this part of the tax law. The 1099 reporting requirement for individual property owners was retroactively repealed in the Small Business Paperwork Mandate Elimination Act of 2011.
To summarize, if you own a couple of properties as an individual you are not considered to be in a trade or business for the purposes of this law so you don't need to issue a 1099 to your handyman. If you and your
spouse own the property together you don't have to issue a 1099. If you own the property in an LLC where you are the sole owners the LLC is disregarded and vou don't have to issue 1099s.
If you own the property in a partnership or corporation with partners other than your spouse you are deemed to be in a trade or business and the entity needs to issue 1099s if you reach the $600 or greater threshold in terms of a payment to a contractor.
If you are a property manager that manages other owners' properties you are required to issue 1099s as you are in the trade or business of property management.
It is also possible to have enough properties where as an individual owner you are deemed to be in the trade or business of renting properties and are required to report even though the activity would not be counted otherwise. If you are claiming to be a Real Estate Professional to claim rental losses you should issue 1099s, just to be on the safe side because you are claiming to be in a trade or business in order to take the losses on your tax return.
Be aware that this is a very simplified explanation of a complex subject and you should get professional advice for your specific circumstances.
Reprinted by Permission. Richard Anderson, CPA is a Past President of the North Seattle Chapter of the Washington State Society of Certified Public Accountants. He specializes in real estate and small business taxation. You can contact him at 206-618-8634 or e-mail at richardpraatax.com. Visit www.raatax.com The above article is courtesy of the Rental Housing Association of Puget Sound, Seattle, Washington. Source: the RHA November 2013 issue of “Update.”