There are three guarantees of being a landlord in Glendora, California: tenant maintenance requests, paying the IRS, and sending out 1099 tax forms.
Whether you’re a first-time landlord or an experienced rental property investor, you know that taxes can be complicated. With various deadlines, constant changes, and multiple forms, tax laws can be difficult to keep up with.
But filing 1099 forms is an important part of being an investment property owner in Southern California. Plus, they will establish your Glendora investment property as a business entity rather than an investment. In turn, you’ll have more favorable tax rates and benefits, especially when you sell your property.
What is a 1099 Tax Form?
A 1099 form for taxes is used by independent contractors or small businesses that pay other independent contractors more than $600 for their services.
This IRS form has two purposes. The first is to claim income over $600 as an independent contractor. The second is to prove a business or contractor has paid another contractor over $600 in expenses for their services.
As a residential landlord, you will likely not receive a 1099 form as you are not hired by an entity for your rental property. However, you will be expected to send 1099 forms to the contractors or business owners you hire to help you manage your rental property.
There are around 20 different 1099 forms issued by the IRS. However, there are only two forms that landlords use the most.
1099 MISC Form
Residential landlords will send a 1099 MISC form when they have spent over $600 in a year on either legal and attorney fees or rent.
The most common instance a rental property owner will need this form is if they hire a lawyer to help them sort out an eviction or legal issues concerning the investment property.
A commercial landlord may receive a 1099 MISC form if they own a commercial building and receive rental income from another business. Residential landlords will not receive this type of form.
1099 NEC Form
The recently created 1099 NEC form is to track payments made to non-employees. In other words, a landlord will send a 1099 NEC (nonemployee compensation) form to independent contractors and small businesses they have hired and paid more than $600 during the year.
Some people landlords may send a 1099 NEC form to include:
· Property managers
· Cleaning services
· Pest control
· Appliance repairs
· Property inspectors
· Contractors for renovations
· Bookkeepers or accountants
If you use any service to help you manage and maintain your rental property business in Los Angeles County, then you may need to issue a 1099 NEC form to claim the expense or tax write-off.
When Landlords Need to File 1099 Forms
The deadline for filing 1099 forms was pushed up to January 31st rather than February 28th. Landlords may file their 1099 forms on paper or online.
It’s important to note that the IRS prefers electronic filing. It can also be much easier for you to submit the forms online. If you choose to file on paper, you will have to collect forms from an IRS office.
Instances When Landlords Don’t Have to Send 1099 Forms
There are some instances where landlords will not have to send 1099 forms to the independent contractors they hire to manage their investment property.
When Property Owners Receive a W-9 Form
One instance where a landlord will not have to send a 1099 MISC or 1099 NEC form is if the person or business they hire provides a W-9 form.
This form exempts the individual from filing a 1099 form to the IRS when they file their taxes.
Payment Through Online Platforms
If a landlord pays an invoice to a business or independent contractor using an online platform like Venmo or PayPal, they do not have to send a 1099 form.
These online platforms will typically issue the forms and report the income of the entity to the Internal Revenue Service automatically. So, if you’re an investment property owner who doesn’t want to deal with more paperwork, then you may prefer to pay for services through these platforms.
Benefits of Submitting 1099 Forms for Landlords
Until recently, many residential property owners didn’t think they had to submit 1099 forms because their property was an investment, not a business.
However, if you do file these forms and transform your investment property into a rental business in the eyes of the IRS, you can take advantage of some tax benefits.
For example, the Tax Cuts and Jobs Act offers a 20% tax deduction on pass-through business income (this is when you convert rental income into personal income). This benefit is only in effect for rental income until 2025, though.
Landlords operating their investment property as a business may also have more tax write-offs and deductible expenses. One of these write-offs can be a home office and other services used to conduct business.
Lastly, property owners will experience a different tax treatment when they sell their property. Since the property was operating as a business and not an investment, any profit made from the sale will have a lower tax rate.
Professionally Manage Your Rental Property and Related Taxes in Glendora, California
Managing a rental property in Glendora, CA, is already a lot of work for many landlords. Between maintenance requests, collecting rent, and acquiring new tenants when necessary, the last thing they want to do is fill out tax forms and keep track of expenses. That’s why most successful investment property owners in Glendora work with a property manager.
Lotus Property Services handles both property management and financial accounting to make getting maximized rental income from an investment property in Glendora, CA, easier than ever, including all the information you need for tax preparation.
With a team of dedicated property managers, your rental property business will always be in compliance with the latest laws and regulations, especially when it comes to filing taxes.
(And yes, you can use a property management company and still qualify as a business.)
Note: This is not professional advice. Always check with your personal accountant or a tax professional who knows your specific situation.
Are you ready to sit back and finally enjoy the passive income you’ve worked so hard for? Schedule a no-obligation consultation with Lotus Property Services to see how we can maximize your ROI today!