1099s are informational tax forms required by the IRS. They are used to report various types of income or payments made to individuals or entities who are not employees. For real estate investors, most often this refers to payments made to contractors with cash or check (including Zelle and ACH).
Other common transactions require real estate investors to file Form 1099. Interest paid to private lenders, and deductible rent payments for your business will need to be reported as well.
There are certain exceptions to these rules. Payments must exceed $600 for the year to be reportable. This exception does not apply to attorney fees, which need to be reported regardless of the amount. Payments made to corporations (S or C) don’t need to be reported. Credit card companies and other electronic payment processors (ie – Paypal, Venmo, and CashApp) are required to file a 1099-K for their customers, so REIs are not required to report these payments.
There are some risks associated with failure to file. Not properly filing 1099s can result in fines ranging from $50 – $280 per form. If the IRS can prove “intentional disregard” there is no limit on the amount that can be fined.
If your business is ever audited, and the IRS finds that your business didn’t properly file 1099s, you may be disallowed any deductions you’ve taken for these payments. This would result in tax liability.
One of the ways the IRS ensures compliance with this reporting is to include it as a checkbox on Schedule C.
It’s also on Schedule E.
To file a 1099, you should obtain Form W9 from your vendors. This is similar to obtaining a W4 from prospective employees. This form will contain all the vendor’s information needed to complete Form 1099. Best practice is to obtain a W-9 before paying any money.
When contractors are paid with Cash, Check, ACH or Zelle the 1099 responsibility falls on the REI. The best way for an REI to avoid this responsibility is to pay all contractors using some form of electronic payment that files for you. Examples of these methods are Credit Cards, Venmo, PayPal, CashApp, or your payroll provider (i.e. Gusto or ADP). Payments made via these channels will have your 1099s filed for you.
Experienced REIs are usually already familiar with 1099 reporting requirements. However most newer investors I meet are barely aware of these requirements. The deadline to report Form 1099 is January 31st. REIs should make every attempt to collect their vendors W-9s before year end.
REI Bookkeepers offers 1099 reporting service (for a fee) to existing clients. However, we have many investors that file 1099s themselves. If you would like assistance with filing your 1099s, the deadline to notify us is December 15th. We are only able to file 1099s for vendors that provide accurate W-9 information.