Issue 1099 for Investor Gains OR Withhold tax myself?

[Joe Pascucci]

What's the best way to handle tax on gains for investors in my real estate deals? I'm currently working in sort of an informal way with each property in my name, not an LLC. I buy, build or renovate, then sell. If an investor puts up $50,000 and gets back $60,000 the $10,000 gain is taxable. My accountant suggested issuing a 1099 to each investor, but then they may have to pay payroll tax as well. The other option is for me to pay the investor the net return only (based on my tax rates) and I pay the tax. For example, on the $10,000 gain if my total tax rate is 40% then I pay the investor $6,000 in addition to the return of the $50,000 capital invested. Any thoughts on another way to handle this for properties held in my name? And for a longer term solution, what are the advantages and disadvantages of doing it all within a business entity?