It’s a new year. And while a new year can bring many good things, it also brings thoughts of something looming right around the corner, April 15 and income taxes. I despise taxes as much as the next person. But I despise even more all of the paperwork that goes along with them. Unfortunately, if you are going to be a landlord, you are not going to be able to avoid some of this paper work, especially if you hire folks to perform various services for you.
You see, the IRS has basically made us their enforcers. Anyone that we pay over $600 to in a calendar year has to be provided a 1099 (with some exceptions for corporations). That means your yard guy, the lady that cleans your apartments, the plumber, your electrician all have to be provided a 1099 with a copy sent to the IRS.
I have written about 1099 forms before, so I will not go into that again. But when you go to fill out those 1099’s, especially if it is the first time you have to do it, you may realize that you do not have all of the information you need. Because the 1099 form not only requires you to report the amount you paid someone, but you also have to report their name, address and social security or tax ID number. Where do you get that information?
You get it by using a W-9 form. The W-9 form is called the “Request for Tax Payer Identification Number and Certification” form and can easily be downloaded from the IRS website here. The W-9 form is a very important form to get completed by anyone (with some exceptions of course) who does work for you. The W-9 form requires a service provider to give you all of the information you need to properly fill out and send a 1099 form.
I require anyone that I have hire to do work for me complete a W-9 form before any work even gets started. In fact, it is usually a part of our contract signing process (You do use contracts with you contractors right?). In this way, I am assured I have the information I need so I do not run afoul of the IRS. Once you have this form, keep it on file, FOREVER. Why? Well, you really never know if the information you have been provided is correct or if they are committing tax fraud. If they are committing tax fraud, you can show the IRS the information you were provided and then you will usually be in the clear. But if you do not have a properly filed out form on file, your troubles may escalate.
What if someone refuses to fill out a W-9? Well, I usually will not hire them. But you can hire them if you want to. When it comes to paying them however you have to withhold 30% of the amount they are to be paid and send it in to the IRS. Much like an employer does with a portion of an employee’s paycheck. It will them be up to the person you hired to get that 30% as a tax refund if it is due to them. What about the W-9? You can simply write refused on it and file it away. But personally, I would stay away from such folks. No need to be on the IRS’ radar screen anymore than you already are.
Remember, I am not a CPA, I am just a landlord with some experience. Please ask your own professional advisers for tax advice.
Excellent advice! Especially the part about requiring anyone you hire to do work for you complete a W-9 form BEFORE starting any work.