Monday, October 18, 2010

1099s for Landlords Included in Small Business Jobs Act

President Obama recently announced a series of tax breaks designed to specifically help small businesses, it is known as the Small Business Jobs Act. Along with the recently advertised tax breaks for capital improvements another piece to the legislation has been tacked onto to the H.R. 5297 bill. This new law will require that all landlords will be required to track information about contractors that have been hired to perform services to rental property that exceeds $600 a year. President Obama signed the Small Business Jobs act on September 27th, 2010.

The 1099 Form

The IRS 1099 form is a special tax form that is issued to contractors that perform services for an amount that cumulatively exceeds $600 in the tax year. This form is provided by the person making the payment to the person doing the work. A copy of this tax form is required to be sent to the IRS at the end of the tax year by the payer and the payee to ensure that income and deductions are being adequately recorded by all parties for tax purposes. The completed form is then sent to the IRS at the end of the tax year. Congress also previously increased the requirements to issue 1099s as part of the health care reform package.

The Current Law

The 1099 form is already required by law for companies who specialized in the business of real estate. Those individuals who own one or two rental properties and receive income from these properties have not been required to track work done or payments made to contractors up to this point.

Those in the business of renting out property as a business will not be in for much of a change when it comes to the new regulation, however those mom and pop landlords across the country will be required to make some changes in how they track contractors, verify deductions and report taxes.

The New Legislation

The new legislation will require that anyone who holds the title of landlord to gather and report information to the IRS identifying those contracted employees who perform work on their property for any total monetary payment that exceeds $600 in the tax year. This new legislation will ensure that income by contractors gets reported accurately and deductions for work and improvements to the property can be verified by the 1099 form. A 1099 will not be required for contractors or laborers who are paid less than $600.

Beginning on January 1, 2011 landlords will be required to gather and report the required information about all contracted employees that perform services on any rental or real estate properties that exceeds the $600 amount. This includes mom and pop landlords of both residential and commercial properties. If the landlord fails to provide the 1099 form and the contact information of the contractor it is expected that they will not receive the deduction that they are requesting when the taxes are prepared and submitted to the IRS. The landlord will be required to provide a 1099 to all contractors that meet the new criteria of the legislation.

Contractors may include but are not limited to:

• Electricians

• Painters

• Snowplow operators

• Landscapers

• Plumbers

• Accountants

• Any other service provider who is issued a payment for service that exceeds $600 in the tax year.

The Goals of the New Legislation

• To ensure that vendors and contractors are accurately reporting all taxable income to the IRS by tracking this on a 1099.

• To hold landlords responsible for providing a 1099 form to contractors who perform services on their property.

• To ensure that contractors and vendors to accurately account for and report all taxable income as required by law.

• To reduce the number of landlords who false report deductions for services that were not performed for the purposes of increasing tax write offs.

• Verify the deductions that are claimed each year for rental property repairs and improvements.

This new law introduced as a part of the Small Business Jobs Act and is expected to increase federal tax revenue of over 2.5 billion dollars in the next 10 year time frame.

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