Do you own rental property in Teaneck, NJ?
If so, the end of the year is a great time to start thinking about tax season. If you know what to expect, you can start gathering all of your necessary documents now, so you won't be as stressed down the road.
For landlords, understanding tax statements and 1099s can be a little complicated. Today, we're exploring how these forms work and sharing the basics you need to know.
What Is a 1099?
The IRS created 1099 forms for one purpose: to allow self-employed individuals to document their sources of income. Anyone from an independent contractor or vendor to a small business owner can use this form to show what they've spent and earned over the past tax year.
As these business setups are different from traditional employer/employee relationships, you'll use this specific form and not a W2. However, it's not quite as simple or straightforward as simply downloading and completing the form.
There are around 20 different kinds of 1099s, but there are two that landlords most often use. These include:
- 1099 MISC Form
- 1099 NEC Form
Let's break these down.
1099 MISC Form
On the IRS 1099 MISC Form, you'll document the following payments:
- Attorney fees
- Rent (e.g. commercial building rent, office space)
Note that you only need to complete this form if those payments totaled at least $600 over the tax year.
1099 NEC Form
NEC stands for Non-Employee Compensation. As a landlord, you'll send one out to any person or business to which you paid at least $600 during the tax year. These parties are usually vendors and aren't considered employees.
Examples of vendors include:
- Plumbers
- Housecleaners
- Landscapers
- Painters
- Property inspectors
- Pest control technicians
- Electricians
- Repair teams
If you paid anyone $600 or more to work on your property, you'll need to send them a separate 1099 NEC form.
W9 Exemptions
Some service providers and companies are exempt from completing a 1099 form based on their business status. You might not know this when filing your landlord taxes. To determine if you need to send them a 1099, you need to request that they provide you with a W9 form.
On this form, they can check a box that states whether or not they are 1099-exempt.
If the answer is yes, then you'll keep their W9 in your records. In the event of an audit, you'll need to show that they checked that box and you didn't need to send them the form. If the answer is no, you can use the contact details listed on the W9 to complete and send your 1099 to the appropriate place.
Learn More About Tax Statements and 1099s
Property management can be one of the most exciting and lucrative ventures of your life. However, when tax time comes around, it can also be one of the most overwhelming. Between tax statements and 1099s, the paperwork and processes are a challenge to navigate.
At PMI Property Management, we're here to walk you through every step of this process. We provide expert accounting and reporting services to help Teaneck, NJ landlords keep all of their important financials in order. Check out this page to learn more and then get in touch!
