For some landlords, even the thought of taxes sends shivers down the spine. Luckily, property managers are responsible for handling and sending out rental property tax forms for landlords to fill out.
Whether you are a landlord or property manager needing information on 1099s, this is the guide for you. Keep reading to learn more about tax statements.
What Is Tax Form 1099?
Most people are familiar with a W2 form, and while this has some similarities to Tax Form 1099, the two work a little differently.
A 1099 tax form alerts the IRS about businesses earning income that is subject to income tax. 1099 forms were created to document payments outside of the traditional employee/employer realm.
In other words, a 1099 form is submitted to the IRS documenting income from non-traditional sources. Contractors, landlords, vendors, and small businesses will receive this form and fill it out to show proof of income.
Property managers should know that tax compliance is of the utmost purpose to the IRS. Complying with Tax Form 1099 is crucial for rental properties.
What Happens if You Don't File Form 1099?
A property manager or landlord that neglects to file the required 1099 form will likely receive a tax or IRS audit notice. The IRS tracks you down and reviews your information to make sure you are compliant with your tax statements.
Landlords won't be able to receive tax deductions when their taxes aren't properly filed.
Failing to report income on Tax Form 1099 can lead to an accuracy-related penalty from the IRS. This penalty is generally equal to 20% of unpaid fees.
There are different types of 1099 forms, but landlords and property managers commonly see 1099-MISC and 1099-NEC.
The 1099-MISC form documents payments equal to or over $600 annually that are made to others within your business. These are generally miscellaneous expenses like healthcare payments, legal fees, and rent.
Anyone that gets paid more than $600 in non-employment income will receive and fill out the 1099-NEC form.
Tax situations are sometimes circumstantial so you might have to fill out 1099 forms even if you haven't made over $600 in non-employment income during the tax year.
What Are Property Managers Responsible For?
Property managers have the responsibility of sending out 1099s to landlords and other service providers receiving more than $600 related to the rental business.
The IRS says that anyone regularly engaged in the leasing or rental business in real estate for profit or income must comply with 1099 requirements.
Along with landlords, property managers will issue 1099s to the following:
- Independent contractors
- Professional services
The individuals will have to fill out the form using this information:
- Tax ID Number
- Funds Issued
A Tax ID Number might be an individual's SSN or the employer's business identification number. Make sure the funds paid are accurate for the tax year.
Understanding Tax Statements for Rental Properties
Tax statements for rental properties differ from the traditional W2 form. To ensure your property manager is familiar with tax compliance, hire property management services.
Property management companies help you follow 1099 submission requirements and send out monthly and annual financial statements.
Let us have your back during tax season. Contact us now to learn more about our services.