Posted by MPS Tax

What every Realtor and Broker should know about 1099s, CDAs and W-9

What every Realtor and Broker should know about 1099s, CDAs and W-9

You do not want to draw the attention of the Internal Revenue Service. However, failure to submit the appropriate form when you make payments to third parties can expose you to the IRS.

If you are paying for services, have an assistant who is an independent contractor, pay commissions to agents or manage owners' properties, you need to know what circumstances determine the requirement to use IRS related forms. Here are some answers to important questions about your responsibilities.

If you have earned income that meets the 1099 criteria, but have never received Form 1099, you are not exempt from reporting that income on your tax return.

What is 1099?

1099 refers to the IRS Form 1099. This form should be used when (i) you pay compensation of at least $ 600 in a fiscal year (ii) to a person who is not employed (iii) for the services provided by a person (iv) during their cause of your business or trade. 

If any of these four items do not apply to a situation, you do not need to file 1099. Requiring you to report these payments in 1099 allows the IRS to ensure that people file 1099 to report their income.

As a real estate broker, you must file 1099 for real estate referral and commission fees or other fees paid to brokers, associate brokers, and sponsored sellers. Brokers and agents must also declare the remuneration to be authorized or unauthorized assistants who are independent contractors, as well as to other persons providing services to their business.

Also, a broker or agent must register 1099 for the payment of rent for office space, unless the rent is paid to a real estate agent or a company, as described below.

There are several 1099 forms; how do I know which one to use? 

Use 1099-MISC to report commissions, fees, and other charges that meet the four criteria listed above.

Do I have to register 1099 if I pay a business entity? How about a sole proprietorship or partnership?

Generally, 1099 is not required when the party receiving the payment is a business. However, the IRS requires an amount of $ 1,099 if you pay $ 600 or more to a lawyer, regardless of the lawyer's financial status. 

Corporations, sole proprietorships, and other unincorporated entities are considered by the IRS to be individuals, so 1099 must be filed to compensate for this type of entity.

How do you know if one of the parties is a business or a natural person?

You can find out by ordering a W-9 from all paying parties.

What is a W-9?

A W-9 refers to the IRS W-9 form. This form provides the necessary information about a party who must file 1099. This information includes identifying information and specifies whether the beneficiary is a natural person or a business. It is an excellent idea to order a W-9 from all of the parts that you pay to help you assess the need to file 1099 based on the entity's business status or not and to make sure it provides accurate information about 1099 when you need it archives. 

Where do I file?

You must submit the form to the IRS and provide a copy of the form to the person who received the compensation.

When do I file?

Generally, 1099 must be submitted to the IRS no later than February or March of the fiscal year following the payment year. A copy of 1099 must be sent to the beneficiary before January 31 of this year. Consult a tax advisor or visit the IRS website for current conditions.

How do 1099-MISC reporting requirements affect property managers?

A property manager must provide a MISC 1099 landlord for the rent collected. Gross income must be reported even if part of the rent is maintained to cover the costs of managing the property or to pay service providers. Also, a property manager must register a 1099-MISC for payments made to a service provider if the payments are more than $ 600 in a fiscal year, and the service provider is not a business. This also applies if the service providers are compensated with the funds withheld from the rent received.

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