Aside from the other tax forms that must be submitted by property managers, form 1099 is required for 1099-MISC reporting. Property managers must submit this form for any owner or service provider who is paid over $600 regarding the rental business.
The penalties for failing to submit 1099s are steep so you should understand your obligations concerning 1099 requirements for the rental business you are responsible for. The IRS requires a form 1099-MISC to be provided to recipients by 31st January 2018. This is a month earlier than the previous year. If you are submitting the 1099 form electronically, the deadline for filing with the IRS is 2nd April 2018. For manual filing the deadline is 28th February 2018. E-filing submissions to the IRS are quite common.
You may be wondering why the IRS requires this extra form. 1099s help the IRS keep track of sources of income that are not recorded on a W-2 form. While the W-2 reports salaries and wages, the 1099 is implemented to report miscellaneous income. For instance, it helps capture the income of independent contractors.
Who needs a 1099:
Owners: Property managers must submit a form 1099-MISC to report rent in excess of $660 paid to the property owner during a particular tax year.
Independent Contractors: A form 1099-MISC must be submitted by a property manger to report funds over $600 paid to any service providers or unincorporated vendors including:
- Repair men
- Pool maintenance (if this is applicable to the property)
- Attorney fees for managing evictions and collecting unpaid rent (even if these legal services are provided by a corporation)
To put it simply, you are required to file a 1099-MISC form for anyone you paid over $600 during the tax year, as long as they are not a corporation.
Each 1099 form requires:
Tax ID Number: For businesses this is their employer identification number (EIN) and for individuals it is their social security number (SSN).
Funds paid: The total amount of money paid to an individual over the course of the tax year.
Address: For the owner or contractor to receive copy of the 1099 for their tax reporting.
1099 forms can be submitted by traditional mail to the IRS. They can also be electronically filed with the IRS. Businesses that submit over 250 forms must file them electronically. Property management software makes it a lot easier for property managers to meet their tax reporting requirements including filling out 1099s. The integrated accounting features of such software record vendor and owner payments over the course of the year and can generate reports on this information when required. If you choose the right software, it will even provide a method to e-file your reports from your account or print a report for your CPA when it comes to manual filing.
Exceptions for 1099:
Owner payments: When the payee is a corporation, 1099s are not required to be filed. In other words, if the rental property is owned by a corporation, it is not necessary to submit a 1099 form when it comes to payments made to this corporate owner.
Vendor payments: Similarly, if you hire an incorporated business instead of an unincorporated independent contractor for maintenance or services to rental properties, a 1099 form is not required.
However, please note that these exceptions are only applicable to corporations not limited liability companies which are quite popular among maintenance vendors as well as rental property owners.
Make sure you file your 1099 forms on time this year as the penalties for failing to file are expensive. You should also check the deadlines each year as they sometimes vary per year. You should have a clear idea of what is required for your 1099 forms after reading this, but if you have any doubts consult a tax professional who is familiar with tax requirements for real estate rentals. You can always contact us if you have any questions.