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Updated almost 5 years ago, 01/15/2020
1099 Contractors refuse to provide SSN,TIN. Should i send anyway?
I'm working on my taxes and getting together my list of contractors I used in 2019. I have never done 1099's but as an LLC, I feel if i want to grow and expand I need to start.
I called several of my contractors up and a couple of them refused. Saying jobs they have done for me they don't report.One of them said I should have told him prior to start of the job.
I told them that i would send the 1099 to them either way... and would write "refused' under there SSN/TIN.
I'm not trying to be a prick, but either way its not like they charged me cheap, they still charged me several thousands….
My question is... should I still send in the 1099's writing "refused"under ssn or would that put me more in jeopardy of getting an IRS audit? or should I leave like that and not send 1099's?
In the future, don't pay anyone without a W9 and insurance certificates. You're going to want to talk to a good tax person that does this for a living to get the right answer, otherwise you're trusting anyone who will answer you, like me, and I sure as poop am not qualified to answer this but others with the same knowledge might think they are
Call the IRS. They have people answering the phone to answer questions.
@Maugno M.
If you have already paid the contractor over $500 call you accountant there are ways for you to take the deduction without reporting 1099. In the future always get w-9, insurance cert., and lien waiver from every contractor. In some state you'll be required to get workmans comp cert. or waiver as well.
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@Maugno M.
You may be issued a penalty if you continue to work with the contractors knowing that they won't give you SSN.
- Basit Siddiqi
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@Maugno M. The IRS can hold you responsible for paying the tax owed if you don’t issue 1099s. They can also demand that you withhold the tax for them! With all new contractors I always get a W-9 before I pay them. Once you’ve paid there is no guarantee they will give it to you.
You must issue to individuals and LLCS that you’ve paid more than $600.00 for the year.
Check with your accountant as to the best way to handle this.
I would recommend forgetting this year and doing it right moving forward. Sending them in with refused or you calling the IRS is likely to get you and or the contractors audited. I didn’t send in 1099s my first year because I didn’t know any better. Since then we’ve gotten smarter and get w9 when they pick up draw check on first job. Period. But no reason to make enemies this tax season.
Originally posted by @Josh C.:
I would recommend forgetting this year and doing it right moving forward. Sending them in with refused or you calling the IRS is likely to get you and or the contractors audited. I didn’t send in 1099s my first year because I didn’t know any better. Since then we’ve gotten smarter and get w9 when they pick up draw check on first job. Period. But no reason to make enemies this tax season.
Agree completely.
You should have had them checked out before hand, if they're licensed, insured etc.. I have discovered at this stage some of them aren't. Many contractors work off the books. So forget about this year.
I done computer and accounting consulting work, and for incorporated entities, no need to issue it. I used landscapers for my rentals, and I determine this issue before hand. They charge me sales tax on my mows so I can issue check payments and report it on my taxes. I even pay a few dollars more besides the taxes. I had these guys a few years now. I don't let them mow a whole year, get the lower rates, not pay sales tax, and then say, "I'm going to report this on my taxes and issue 1099's". If done retroactively, the time and energy for my landscaper to file corrected returns would be mind boggling. I done retroactive corrections, and my CPA warned that it will invite tax audits. I had a tax audit on something minor, and the time and energy, several days worth, could of been better used, besides not fun.
Also, 1099's should be for labor, not materials. The idiot that 1099 me, triggered the audit, included materials in his 1099, and the IRS thought I under reported. I did $20K in consulting and sold $20K in hardware, and he 1099 me for $40K. I sent the analysis to the IRS, showing the "cost of goods sold", if included would be correct. Besides, I was an S Corp, and 1099's are not required.
So if you don't know how to 1099, know who should get it, don't, as I told my client. He was supposed to issue a corrected 1099, believe a 1099R, according to the IRS, but didn't.
@Bryan Devitt@Mark H.@ryanwebster@Josh C.@Frank Chin @alan @josh
@frank
I know I need to consult an accountant, but everyone has there own opinions. so that's why I wanted to hear from people who have actually done it. I haven't 1099 anyone since I started but want to start. THe contractors agreed to the 1099 but there is two of them who didn't. so I'm debating if I should send it in either way, since I don't have there SSN or TIN. Ive read on here to just put "refused" but I don't want to get audited because of this.
Originally posted by @Maugno M.:
@Bryan Devitt@Mark H.@ryanwebster@Josh C.@Frank Chin @alan @josh
@frank
I know I need to consult an accountant, but everyone has there own opinions. so that's why I wanted to hear from people who have actually done it. I haven't 1099 anyone since I started but want to start. THe contractors agreed to the 1099 but there is two of them who didn't. so I'm debating if I should send it in either way, since I don't have there SSN or TIN. Ive read on here to just put "refused" but I don't want to get audited because of this.
Let me ask you, are these for your rentals? If a rental, you're not required unless qualified as a professional investor under 199A. Otherwise, passive investors, those just doing rentals, under 199A, are not required to do it. For flipping, it's another story.
As to contractors that refused it, let it go, as it's more trouble than it's worth. I'm not even sure the IRS is going to pursue them as issuing 1099's had been used to harass people, like political opponents, unpopular leaders etc. I can issue 1099's to anyone, for any amounts, like $9,999,999, with an address and say they refused the SSN.
So for people that refuse SSN or TIN, 1099's are harassment. From my experience, those with TIN's are usually incorporated entities that you don't have to 1099 to begin with, like S Corps and C Corps. With LLC's, it depends on how they file their taxes. As to my client that 1099 me with my S Corp, though he didn't have to but not illegal, and for the incorrect amount, and never got around to issuing a correction via the 1099R as requested by the IRS, I consider myself harassed.
@Muagno M.
You 100% needed to get this before paying them. If i was them i wouldn't give it to you either if you didn't disclose you wanted it up front.
Just take the deduction without sending the 1099.
Understand you will run into this all the time using cheap contractors.
The IRS is nothing but a business with the power to put you in jail. They have limited time and resources. This means they will only go after highly profitable cases for them. They know that most people lie on there taxes, but they can only pursue the ones most likely to put money in their pocket.
REMEMBER: Pigs get fat, hogs get slaughtered.
@Frank Chin Thats for the info. and yes.. it is for my flips not my rentals.
@David Kelly it sucks.. i need to put my systems in place and get it done correctly
@Maugno M. Dont worry about it. Lots of builders will build entire houses without issuing 1099's and be just fine. Really not that big of deal until you reach a high level. Just communicate clearly with them from the start next time and get the info before they get paid.
@Maugno M. you are legally required to send 1099 if it is over $600, not incorporated or not paid by credit card. You need to do this to comply with federal tax law. For that reason, I would absolutely send them this year to all who you are required. Assuming you have invoices and paid by check, there is no concern with regards to the IRS. If you paid these contractors in cash or don't have invoices/receipts, then there could be a problem.
When they say they don't report the jobs, they are actually admitting to tax evasion. It is something the IRS takes very seriously. It is common for small contractors to NOT pay taxes and it is the entire reason they require 1099 for these types of businesses.
There is no penalty to you for sending 1099, but not sending could result in you being responsible to pay THEIR taxes.
As others mentioned, you want the W9 up front. I get it before work is started, so they know the job is taxable. Worst case, you can get it before you pay them.
I will also add that my understanding is that you are required to send 1099 for a rental business. If you are claiming any business expenses and operating for profit, then you are engaged in a business. If you are going to try to claim your business is 100% passive, then say goodbye to office deduction, educational deductions, 199A, etc. There is no harm in sending them and it takes no time. We avoid most by paying vendors with credit cards or working with incorporated businesses anyways.
Here is the actual IRS wording:
Report on Form
1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit.
Link:
https://www.irs.gov/pub/irs-pdf/i1099msc.pdf
Here is a NOLO article discussing landlord 1099 requirements:
https://www.nolo.com/legal-encyclopedia/hiring-independent-contractors-your-rental-activity.html
One final comment. For those who end up getting audited, the IRS will not accept ignorance of the law as a defense. So you can't say, "I didn't know I needed to send 1099". Their expectation is if you enter into business that you will research and follow the laws. Honestly that is the best case to be made for every business to hire a CPA to do your taxes. They know what you need to know.
@Joe Splitrock So from your experience(and I know your not an accountant) I should send them 1099 even if I don't have there SSN or Tin? I have there name and addresses. I just don't want to increase a chance of me getting audited by sending a 1099 not completed like writing "refused" on there SSN thing. I don't have anything to hide or beat around the bushes but who wants to mess with the IRS anyhow.
Originally posted by @Maugno M.:
@Joe Splitrock So from your experience(and I know your not an accountant) I should send them 1099 even if I don't have there SSN or Tin? I have there name and addresses. I just don't want to increase a chance of me getting audited by sending a 1099 not completed like writing "refused" on there SSN thing. I don't have anything to hide or beat around the bushes but who wants to mess with the IRS anyhow.
That is a tough one, because you could get penalized or attract an audit for not collecting their social security number. It is your responsibility to do that. At a minimum you want documentation showing you have made attempts to collect. Some people go as far as withholding 30% from payment until they get the number.
The tough part is which situation is best:
1. Send no 1099 to anyone
2. Send 1099 only to those who you have social security number
3. Send 1099 to everyone and leave the SS# out or put refused.
If you get audited, option 3 will look best for you. You acknowledge you learned the requirement late and tried to do the best thing. Ask your CPA what the best option is. Maybe they will see you as low risk for audit and suggest option 1 or 2 to not attract attention.
One approach to get the contractor to provide their social security number is tell them you are going to 1099 them and tell the IRS they refused to provide their tax payer ID number. They can't do that and it is a red flag to the IRS that they are dodging taxes. It is in their best interest to give you the number and pay the taxes. Would the contractor rather pay taxes on your job or get stuck paying taxes (and penalties) on everything?
@Joe Splitrock and you are spot on with my options. I'll see how I proceed since I have a couple weeks to make sure I get this right. thanks for the insight. I reached out to CPA in my area today, consultation this evening we'll see what they suggest
@Maugno M. Chances are they probably don’t have legitimate businesses if they are refusing. Always get the w9 and insurance info on day one. If you want to take it a step further so you are not liable get there worker’s compensation info or an exemption.
@Maugno M. Another thing I thought about is why does everyone keep talking about ss number. There isn’t anyone that should be using that if they are a real business. If you want to use their ss number then that means you are writing checks to them personally. You are better off paying them cash.
Handyman and Contractors price based on things like this. If you did not tell them up front, you will probably not get a 1099. With that said, once you refinance, if doing a Brrrr, you may not need them. Ask your tax accountant before getting too upset. In the future, tell all people that are bidding on your jobs that you will require a 1099 upfront.
JMHO
Rick
I went back and read most of the post here and I am not hearing a thing about getting that agreement upfront. I always tell my subs that I will be getting a 1099, before they bid. Be honest if you expect honesty in return.
JMHO
Rick
@Frank Chin actually the guy that prepared your income tax return triggered the audit. You are suppose to deduct any $ that you spent on materials. In this case 20K, so you are still left with a 20k profit.
Originally posted by @Gerardo Escutia:
@Frank Chin actually the guy that prepared your income tax return triggered the audit. You are suppose to deduct any $ that you spent on materials. In this case 20K, so you are still left with a 20k profit.
Actually the IRS concluded my return was prepared correctly and apologized. What you say "the cost of materials" I sent to the IRS auditor a copy my S Corp return, which they have, I highlighted in "yellow marker" where the cost is.
What I did was I prepared invoices for my service separate from my sales of goods, so they could just book the service invoices. They chose not to. Also as an S Corp, it is not necessary to issue me a 1099. So the trigger is actually the unnecessary 1099.
How the IRS concluded I unreported still mystifies me. I had a client who employs entertainers and also reimburse them for costumes and props that I do 1099's for. I asked for separate invoices so I only 1099 the service part. One women objected to the extra work, citing what you said, "but I already deduct what I spent on materials on my taxes". Often it's separated out on the invoice, which this women didn't do, so I split it into separate expense line items when I book it, one of them flagged for 1099.
So, been there, done that.
Originally posted by @Gary Siver:
@Maugno M. Another thing I thought about is why does everyone keep talking about ss number. There isn’t anyone that should be using that if they are a real business. If you want to use their ss number then that means you are writing checks to them personally. You are better off paying them cash.
You are right technically it is TIN (Taxpayer ID Number) which can be SSN, EIN, ITIN, ATIN or PTIN. What you find very often is these small contractors may not even have an EIN. Some probably should but they may pay employees cash. So either sole proprietors or people who don't have their business setup properly may use their SSN. A true business would incorporate and then none of this would be necessary.
https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin
Part of the problem is the skills required to swing a hammer or turn a wrench are completely different than the skills to run a business. So people decide to "go out on their own" without understanding there is more to a business than invoicing a customer.
@Gary Siver @Frank Chin @Rick Wade @Joe Splitrock These are individuals that specialize in an individual trade and do side jobs like mine. some do this full on the side. You all are correct, i'm telling them ahead of time now so we wont have issues anymore. My problem is that they charge a significant amount for it to be under the table money, so I'm going to do my part and issue 1099's. I just spoke to a CPA here locally... it wont cost me an arm and a leg to hire her. So this will probably the first year I hire a cpa and she agrees its probably time. I had two LLC's , and at the end of the year I ventured into a new business in opening up a retail store. so I think its time I add a CPA to my team. She suggested we follow through in sending all 1099's to def cover myself.
Thanks all for your input.