Contractor doesn't want Payment Reported to IRS. Will I be able to take deductions?

[Saji Ijiyemi]

Hello -- I need to do a major rehab on a rental property that will cost about $50k-60k but the contractor does not want 1099 and wants nothing to be reported to the IRS. I want to be able to claim deductions. For tax purposes, can I still claim deductions if I don't give the Contractor 1099? Will the IRS want to know who I paid the money for the major repairs? I will appreciate your help. Thank you.

[Chris Seveney]

@Saji Ijiyemi

Is this contractor licensed? Something of that size your accountant will absolutely tell you to submit a 1099.

Not legal or accounting advice but when someone says that it would Make me nervous about type of work they do as if they cut corners that way what other ways they cutting corners

[Saji Ijiyemi]

Thanks for your quick response @Chris Seveney. Not sure if he's licensed. I've seen his work and he does a very good job, though not as big as the one I want him to do. Do you have reputable and reliable contractor that you can recommend?

[Bruce Woodruff]

DO NOT use a Contractor (if he even is one?) who starts off the project by cheating and asking you to cheat as well. Is that the kind of relationship you want to be involved in?

Just because his past work looks good means nothing. Have you seen the past projects in person? Or just seen pics on his phone? Be very very careful with a guy like this....

But to answer your question - No you cannot dodge the reporting of a large sum of money to a Contractor. If/when the IRS finds out (and they will), they can fine and penalize you as well as him for failure to report.

First thing to do is to check his license status. I'd be surprised if he is licensed. https://dllr.state.md.us/cgi-bin/ElectronicLicensing/OP_Sear...

Go find a real contractor, who is legit and does things right. Yes you will pay more. Get over it and play by the rules.

[Matt Devincenzo]

What he's asking is "will you facilitate and knowingly aid me in tax evasion"? That has a different ring to it when you say it that way doesn't it! But that's what it is and that is what the IRS would consider it as well. Does it happen regularly and no one catches it, sure. But do you want to associate with that or not, only you can decide. 

[Simon W.]

Quote from @Saji Ijiyemi:

Hello -- I need to do a major rehab on a rental property that will cost about $50k-60k but the contractor does not want 1099 and wants nothing to be reported to the IRS. I want to be able to claim deductions. For tax purposes, can I still claim deductions if I don't give the Contractor 1099? Will the IRS want to know who I paid the money for the major repairs? I will appreciate your help. Thank you.

 you are going to have to report it one way or the other. if you spent $50K-60K on construction labor, IRS is going to ask you who did you pay all that money to? You certainly won't say I paid to thin air. IRS will think you are just pocketing the money and you will get an audit.

IRS Audits aren't random. 

[Alecia Loveless]

@Saji Ijiyemi There could be extenuating circumstances. I have someone who occasionally works for me that has extenuating circumstances.

There is likely a work around to claim some sort of something to get to the point of writing off the expenses but you might be hard pressed if you were to get an audit.

[Bruce Woodruff]

Quote from @Alecia Loveless:

@Saji Ijiyemi There could be extenuating circumstances. I have someone who occasionally works for me that has extenuating circumstances.

I love your posts Alecia, but sorry, no, there are no 'extenuating cicumstances' here. Why would the 'Contractor' not want his earnings reported to the IRS? There is only 1 reason.

[Simon W.]

Quote from @Alecia Loveless:

@Saji Ijiyemi There could be extenuating circumstances. I have someone who occasionally works for me that has extenuating circumstances.

There is likely a work around to claim some sort of something to get to the point of writing off the expenses but you might be hard pressed if you were to get an audit.

Extenuating circumstances maybe for $1000 but saying that for $50K-$60K (this is someone salary for the year) and doesn't want to get reported, is clearly trying to manipulate the books.