The rental market is booming, and it's good for landlords. However, among the many headaches of owning commercial real estate, tax time is one of the biggest.
If you've been through this process or are just starting out, you're not alone. In fact, independent landlords own more than 24 million rental units across the United States.
Let's talk about tax statements and 1099s for property managers.
Types of Tax Statements and 1099s
There's a lot to know when it comes to property management tax reporting.
Your 1099 forms are used to report your self-employment income and income from interest and/or dividends. If a commercial tenant pays you more than $600 in the fiscal year, you will have to supply them with a W-9 form. After you report the income, you will receive a 1099 form.
Likewise, you will be sending out a 1099 form to any non-employee you had to pay in excess of $600 for your property business. This could be your plumber that you had to hire for a few repairs, or anybody else. Hold on to these records and they'll save you money come tax time.
This is a little different for property management companies. If you own a property management company, you will provide the W9 to the property owner and then receive a 1099 form if you were paid in excess of $600 during the fiscal year.
If you receive a 1099-NEC (nonemployee compensation), you must mail it to all necessary recipients and file it with the IRS by Jan. 31. All other income should be reported on a 1099-MISC and must be mailed to recipients and filed with the IRS by March 31. While these are the most common, there are other types of 1099 forms to be aware of in case they apply to you.
Why You Should Care About These Forms
These forms are not optional. The IRS requires you to fill them out and submit them, reporting all required income. If you don't submit these on time, there can be very serious penalties from the IRS.
There are other various nuances and challenges with some of these forms. To avoid this headache as a landlord, you can hire an experienced property management company to handle all of this for you.
Holding on to all documents for a number of years will provide you with several advantages. Showing some consistency to the IRS during tax time by providing them all the necessary information from previous years will show them you're prepared in the case of an audit.
When you're filing your taxes, having references for yourself from previous years will also help you make sure you're not forgetting any important information, and not doing anything too different from previous years. This will give you some peace of mind in the future.
What Else Should I Know
The most important thing to know is that diligence is rewarded in this industry. Keeping records of your rent payments, business expenses, as well as tax statements and 1099s will always pay off in the long run.
But hey, speaking of business expenses! Make sure you're getting the best type of insurance for your multi-unit house so you aren't throwing money down the drain!