Tax Accounting for Joint Venture on a Flip - Paying His Invoices?

[Natalie Schanne]

@Brandon Hall    @Natalie Kolodij      @Linda Weygant  CPA <3 

What's the best way to account for business expense deductions during a joint venture flip? I have read websites like http://www.double-entry-bookkeeping.com/partnershi...

My LLC A has a signed 'JV' agreement with LLC B to "lend money" on a house LLC B owns 100% and I will coordinate rehab repairs, permits, etc. until it is sold. We will split profits 75% (B) and 25% (A - me) at closing. I estimated the project would be $20k spent (by my LLC A) and 90 days. They agreed to pay a 5% upfront "fee/interest" on any money spent on the rehab.

My LLC A has been acting like the property's GC by getting bids and hiring painters, tilers, HVAC, plumbers, electricians, etc., to do work because LLC B's ownership does not have time. When the work is inspected and approved, I have paid for it promptly from LLC A. Often the contractors invoice me in LLC B's name and I have paid those invoices with checks or cash from LLC A. (Is this a mistake? Should they invoice me as LLC A?)

LLC B asked me for W9 information for all of the workers so far (including day laborers) who have made more than $600. I understand that a 1099 MISC needs to be issued by Jan 2018 to non-employee contractors who earned $600+. I am not sure why they need the W9 info for people I paid.

At the end of the day, what's the best practice for accounting for expenses? Should I be giving LLC B all the money upfront needed to pay all the bills and then they pay them from their account? (This is a new relationship and there is not complete trust.) I gave LLC B $5,000 directly and the remaining $10,000 has been paid out directly to workers or is owed from materials purchases on LLC A's credit cards.

How do I clean this up? 

Can LLC B issue me 1 1099 MISC and/or simply pay me out from proceeds at settlement via the title company for the balance of the rehab costs I've paid + my profit %? Then I 1099 MISC the people I've paid directly (even if the invoice was in LLC B's name?) - So they either net less from the sale or take a big deduction on their account as a payment to me (invoiced) and LLC A internally records all the itemized deductions from what I've paid out.

Should LLC B issue all the worker 1099 MISCs including one to me for my Home Depot, etc., charges based on invoices + my JV profit %? (So they itemize all the deductions from their account based on my receipts?)

What happens if there's a net loss and I do not get repaid for my rehab $$ in full? Is it easier to write off a bad business debt or a paid business receipt?)

I am trying to find the easiest solution that preserves my ability to file a lien for construction rehab on the property if it goes south and someone else takes over the property. The more I work, the more $$ in repairs I find. LLC B has an upcoming balloon / private money loan on the property and has unnecessarily delayed repairs I'd've had done 30 days ago.

At this point, I feel more comfortable paying directly to contractors for the remaining $10,000 of repairs to the property but not in giving the LLC B $10,000 directly to manage to pay for repairs to the property A because of financial liabilities around a second property LLC B also owns. LLC B's owners are not financially able to contribute more cash to Property A or B as far as I know.

Thank you for your thoughts and/or IRS code references to where I can read about how to manage this. Cheers.