Hiring a contractor-do i need a 1099, etc?

Question

First time poster here:

I have operated a consulting business for many years and recognize the need for contracts, 1099s, etc when hiring subs. However I recently becam a landlord and we need an Air Conditioner installed in the unit.  This is a much less formal relationship than I am accustomed to, so I want to get some advice. The contractor provided a written quote and said he will give me an $800 discount for cash payment. He only accepts cash or check. He wants one third down payment with remainder due upon completion. My business partner has used this contractor In the past with no issue. Anyway, all we have is a service quote from this company.  Assuming we use this company, what else should i request (or do) to protect myself?  Is it appropriate to request a 1099?  Or is the Tax ID listed on the quote all I need?  Is a "one third" down payment a reasonable milestone payment?  Is a more formal contract/service agreement necessary?  Or does the quote satisfy the bean counters? I have no real concerns about paying with cash (I know that I must get receipts)---but I want to mitigate risk plus satisfy the IRS (if it ever comes to that). Any assistance is greatly appreciated.

Steve Vaughan · Answer

A tax id and address are all you need to issue (not receive) a 1099 to the contractor next Jan.  As far as I know, you do not need to 1099 a corp unless it's a lawyer,

I hired a roofer last year and paid him more than $600 so I had him fill out a w-9 so I could 1099 him this year.  He was an individual.  If your A/C co is an Inc, you don't need to.  Seek better tax advice if needed @Michael Bernhard.

I made the mistake of not giving an excavator a w-9 for a $1750 job 2 years ago and couldn't/didn't bother depreciating/deducting the expense.  I added to my basis, but still learned to w-9 people now!

BTW-  an $800 discount for cash usually means they don't plan to report the income and a 1099 will not be welcome.  Funny when these guys treat us like homeowners.  We are running a business too, genius. I quit hiring dishonest contractors a long time ago, but this is your choice of course. I may get a 2nd bid.

Michael Bernhard · Answer

Understood. Thanks guys. Regarding the term  "1099" I meant to say "W9". Anyway it sounds like I dont need to have a contract or a W9 as long as I have a quote with a tax ID.

Unrelated to this service but just curious, I believe that I would have to issue a 1099 if the provider is a sole proprietor (rather than a corp of LLC). Is that accurate?  for example if the busines was "Joe Smith" or "Joe Smith dba HVAC R Us" rather than and corp/llc

Sid Leibowitz · Answer

A contractor is an entity that organizes and subcontracts labor and equipment in order to complete your work order. They may employ its own forces or subcontract some of the tasks like electric and plumbing which may go to a "licensed" subcontractor. The contractor has a legal company name, license, Workman's compensation and liability insurance and collects sales tax and pay income tax. They are responsible to the government to comply with all state and federal laws. Cash has nothing to do with the contractors responsibility to pay taxes. It is a safety measure that you can not cancel a check of have insufficient funds and there payments are liquid. If you contract with a bonafide contractor they should supply you with a "line item estimate" explaining the labor and material costs of the components they are installing in your project. They are being upfront with everything they are going to do for a price. If they leave out anything, They are entitled to increase the cost to make a profit. AKA an "extra".    The contract takes it one step further and breaks down not only the price, It explains what is included and excluded as to the compliance of the lawful transparency of your deal and agreement. It is a legal document that is an attachment of the "estimate". AKA "guesstimate".  The estimate may not be the entire price. It is a best faith "estimate". This is not a contract price with no additions. Additions may take place a s the project progresses like finding mold or bad piping or electrical that requires upgrading in order to be compliant to current code. The contract agreement should also outline the deposit and progression payments as well as failure of either party in case either party does not live up to the agreement. Make a copy and read carefully and make column notes to discus with the contractor. The only thing legal is what is written and signed by both parties. Request a copy of the contract in advance of any work or obligation so you have enough time to digest the content.

Michael Bernhard · Answer

So, let me summarize for anyone viewing this later (some of this is from the above notes and some of this is from discussions with my tax advisor):

(1) It is best to get a contract when using a service provider; worst case, get a quote that include TAX ID, business name and business address

(2) Always get a W9 when using a service provider; my advisor told me that you can probably get away without obtaining a W9 from a national provider like Home Depot, Sears Home, etc, but technically the IRS expects you to get the W9; the burden of proof lies with you to prove you did not need to send a 1099, so in the case of Home Depot, etc, it is highly unlikely the IRS would fine you for not sending a 1099.

(3) Using the TAX ID and business name provided on the W9 or quote, perform "TIN Verification" to verify that the business name matches the Tax ID; this can be done for $1 using a web site called www.1099online.com - or use any service you like to do this

(4) There is no need to issue a 1099 to a corporation or LLC;  You are allowed to send 1099s to corps and LLCs, but those organizations are allowed to toss them out

(5) Whenever more than $600 is paid to a sole proprietor (i.e. a company that is not a corp or LLC) then the IRS requires that you issue a 1099 to that sole proprietor.  You are allowed to send 1099s for less than $600.

Feel free to add your comments if you think something here isn't accurate or quite as black and white as I am thinking.

Michael Bernhard · Answer

Thanks Kurt.

Michael Bernhard · Answer

Thanks Sid.  Makes sense.

Sid Leibowitz · Answer

Michael. I think that you are under the impression that you do not think that you need a "contract" and that just the "estimate" will suffice.  You need a contract with remedies included !! If you work with a savvy contractor, they could actually throw a lien on your property until you pay them for incomplete, shabby workmanship or they can sue you and obtain a judgement and take your property.  A mean spirited contractor is your worst enemy. They understand what a mechanics lien is and have no problem instituting it. Protect yourself with a carefully crafted "contract document". Talk to your attorney and listen to his advise.

Michael Bernhard · Answer

Thanks Mary.

Mary B. · Answer

get a w-9 from them so that you are covered during tax time. its a business expense and you will need that contractors business info to claim that expense on your tax return. doesn't matter if you only use his services once or several times. this way if you choose to give cash, money order, certified check won't make a difference. you want to cover your bases.

Kudos,

Mary

Hiring a contractor-do i need a 1099, etc?

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