Working with contractor who doesn't want to be w-9ed

[Katrina P.]

Hey everybody,

Hubby and I are in the process of finishing up on our first flip, and we have some finishing touches that need to be done (i.e., changing receptacles, cleaning trash out of attick, painting inside of closets, etc.) to get the house on the market. Well, the "handyman" we found on craigslist gave us a price of around $2k, but when I told him I'm going to send him a w9, he said, "Aw, you're gonna w9 me?" He said that if he gets a w9, they'll take 30% of his profit, and since he does it on the side, he charges less than other contractors would. He said that if we w9 him, he'll meet us "half-way" and just up the price by 15%, so he'll eat the other 15. He said the other way we could to it, is put most of the cost on the "material" side, so that we can still write off our improvements, but he wouldn't be taxed too much. And of course the final option is for us not to w9 him at all...any input? How does either of these scenarios affect us..we're still so new to REI..need help please.

Katrina

[Steve Babiak]

Who would you rather see have trouble with the IRS - you or him?

Tell him you must issue the 1099 if the amount of money paid to him is $600 or more, and that you must receive a W9 from him before you can make any payments to him whatsoever. The W9 is used by him to claim exemption from witholding of taxes by you, and in the process you receive his TaxID so that you can properly report the 1099 when that time comes.

If he has to change his price, then deal with that. The idea of you paying for materials directly to reduce how much you pay him in labor works fine. But if you have to pay him $600 or more, then you should be doing things the right way to keep YOU out of trouble.