1099-MISC should be issued anytime you pay $600 in rents or services to contractors. You don’t need to issue 1099’s for personal purposes, only if you intend to deduct the expenses for business. You’ll issue this form to any individual, partnership, or Limited Liability Company (“LLC”). You don’t need to issue 1099’s to corporations.
Typically for homesharers, the top 1099’s that you’ll issue will be:
- Cleaners – typically cleaners are sole proprietors doing business under a fictitious business name;
- Home Improvements – any projects where an invoice was issued for over $600, and where the contractor was not a corporation will require a 1099-MISC to be issued. Make sure to include supplies if they were billed to you on the 1099-MISC;
- Landscaping – any projects above the $600 threshold require issuing a 1099-MISC to be able to claim the deduction.
Just note that these only apply when you contract work. If you are purchasing supplies, an invoice should be sufficient documentation to claim a deduction. One way to limit 1099 issues is to use corporate services for these routine tasks. Platforms such as TurnoverBnB can make cleaning easier for example, since you won’t have to issue 1099’s to cleaners hired on their platform. Using services like these services can provide you with the ease of direct billing and breakouts of fees per project.
The cost of not filing
We definitely recommend filing 1099’s since penalties for not filing can range from $30 to $100 per form and if it is deemed that you intentionally disregarded the requirement, you will face a minimum penalty of $250 per statement.
The IRS can disallow a deduction for contract work where a 1099 was required but not issued, so you could be looking at paying taxes on contract fees due to the lack of proper documentation. Keep track of payments to contractors in your accounting software or in a simple Excel or Google Sheet where you can easily add up totals per contractor.
HOW TO FILE 1099’S WITH THE IRS
First, you’ll want to issue a Form W9 to your contractors and use that information to fill out the 1099. We recommend issuing these before you have the contractor begin the work. It’s much harder to get a W9 filled out after the year is over.
Unfortunately, you can’t simply print a 1099 online and send it to the IRS. You can only mail official 1099-MISC forms to the IRS since each form will contain its own unique document locator number. In fact, sending in the wrong forms carries a $50 penalty. You can pick up hard copies tat your local office supplies store (e.g., Staples or Office Max).
Indicate non-employee compensation in box 7. If you reimbursed your contractors for supplies, you’ll need to indicate that in box 7 as well. The total should represent the sum of all payments made including parts and materials.
Check the IRS instructions for how to mail information returns or reach out to your tax pro for detailed advice.