Any problem if I don't issue 1099 to handyman with job over $2K?

Question

I recently paid a builder about $4,500 total for several projects at my rental home in Indiana. These were: building a new wood deck at back door, building new staircase in  basement, installing a new window, repairing a floor, building a bedroom closet, hauling out the junk the tenant left behind.  Although he has a business name "Absolute Carpentry" on his invoices , he requested checks for payment be made out to his own name , not the business name , which we did.

Now I am wondering , do  I need to issue him a 1099 when I do my taxes at the end of 2021?  I don't have his social security # or tax id # . Will I be able to issue that without the tax id?  Will there be any negative consequences for me if I do not issue the 1099 ? Or if  I issue it  to his name "Dale  XXXXXXX"  and not his business name ?

What is the dollar limit where you can skip issuing the 1099?

I doubt he'll call me back if I contact  him since he didn't want to do an additional project at my house (painting)  recently because he had taken on bigger more expensive projects.

I own the rental home in my  own name, not an LLC.

Any replies would be appreciated !!

Account Closed · Answer

I've been running several businesses for 55+ years, did several million in business every year, paid millions and millions to contractors, vendors and never did a W-9 Form nor a 1099 form. The most you can get fined for not providing a 1099 Form is $50 per for each individual, contractor or vendor you do not provide a 1099 form for. That is all!

While it appears to be dishonest or appear that you are doing something horrible by not providing a 1099 form, don't forget it is your contractors' and vendors' obligation to file and report their own income with or without your filing a 1099 Form.

I started a thread a few days ago about the horrible risks property owners are taking when they don't pay proper payroll taxes for their live-in apartment building managers. In the past 5 to 10 years there has been a huge increase in the number of apartment building managers who have been suing their landlords for mis-classifying them as Exempt meaning the landlords are not taking taxes from the apartment managers' earning when the apartment managers should be classified as non-exempt. Apartment managers started suing their landlords for injuries and for not the landlords not covering them with worker's compensation insurance and the managers are suing for overtime, for not getting 10-minute breaks and for not getting uninterrupted 1-hour lunch breaks. This may sound like something that will not happen to you, but when you open your mail and it contains a lawsuit for $1.5 million you will wish you had coverer your butt.

I've seen many businesses have to shut completely down and it is a horrible feeling when you don't sleep at night as you vision your property manager will own your entire rental property, or maybe all of them. There is a huge difference between an a workers comp injury lawsuit where the insurance company pays for everything, but when you get sued for overtime, for not classifying your manager as Non-exempt, for not providing your manager with a Wage Earning Statement every month, for over-time pay and for other causes of action you are served with a Civil Lawsuit. That means you have to pay your attorney $75,000 to $100,00 just to get to your first mediation ordered by the court and you still have to pay at least $50,000 to $150,000 for what I call 'Go Away Money' to make the case go away so you don't have to go to a jury trial. Then you have to pay your property manager's attorney fees of about $100,00. So to make the case go away will cost you $180,00 to $350,000 and if you don't settle at mediation your manager's attorney moves forward with a jury trial and your attorney alone will cost you $350,000 to $400,000 plus the other attorney plus what your property manager gets.

This is no joke. I was served with 3 civil lawsuits in the past three years filed by my workers in my plumbing, HVAC and construction business. I also had 18 worker compensation lawsuits between 2015 and 2018. Each Civil Lawsuit was for almost exactly $1.2 million, or $3.6 million total and believe me, I spent a thousand hours putting documents together. I got real lucky because I probably have the most documentation for workers than almost every other company. Each lawsuit contained 11 to 13 causes of action that claimed exactly what I described about, but I make my employees sign paperwork every week stating they get all their breaks and my employees fill in the number of hours they work every week and not one of the employees who filed Civil Lawsuits stated that they worked overtime. I make my employees sign a copy of their Wage Earning statement every week and I both scan all paperwork and put it in my computer and I keep paper copies for everything. Even though my employees' attorneys know they don't have a case they file anyway because they know I have to pay 'Go Away Money'.

So, don't worry about 1099's and worry about one of those same workers getting hurt. No, don't worry about one of those workers getting hurt because even if they are not hurt they will sue you, anyway, and even if you can prove the worker was not hurt you will still have to pay your attorney, the worker's attorney, the workers phony medical bills and you will have to pay 'Go Away Money' and that could be anywhere from $100,000 to more than
$1million depending on the injury the worker claims.

I had several employees sue my worker's compensation insurance company two times. I went to a deposition for an employee who sued my company the 2nd time. At the deposition my attorney asked the employee why he filed the first lawsuit and the employee said it was because he was mad because I laid him off. The attorney asked if he was injured and the employee said, "NO". My attorney asked the employee why he filed the 2nd lawsuit and the employee said it was because he was mad because I laid him off the 2nd time. My attorney asked if he was injured and the employee said, "NO".

I figured we had a 'slam dunk' case and it was over, but my attorney started yelling at me for hiring the worker back. I actually liked this worker and gave him the 'benefit-of-the-doubt the first time. I still don't understand the reasoning, but my insurance company paid the employee $30,000 and I get angry because it send a message to all the other employees that there is some fairly decent money to be for going to an attorney, going to a fake doctor a few times and for going to only one deposition that takes about 2 to 3 hours.

Account Closed · Answer

I agree 100%. I've been audited by the IRS several times and the audits were always what they call Junior IRS Agents. The last IRS audit I had took so many papers it filled 3 of those large plastic file trays you purchase at Office Depot or Staples. I have every record super organized. The auditor was a woman because I had spent about 8 weeks organizing documents, bank accounts, etc. and working late into the evenings for about 8 weeks I was sort of disappointed because the auditor sat across from my CPA, looked at two folders, told my CPA she everything looked great, talked about her college years and about getting into the IRS and she stamped a paper saying No Change Audit and left.

People should not even trust their CPA's. When the auditor stamped the No Change Audit with a rubber stamp I left my CPA's office because I was running my company with 60 employees and was working in the field on construction projects. I called my CPA's office and his secretary answered and told me he was on the phone and when I asked how the audit went she said the auditor left about 10 minutes after I left. So, I told his secretary to have my CPA call me when he was free.

The auditor was at my CPA's office at 9 am and according to my CPA's secretary left at about 9:25 am. My CPA charges me $250 per hour. My CPA called me at 4 pm and told me the auditor had just left because after I left she decided to go through my records. I never challenged my CPA's dishonesty because he did a great job handling my tax records and advising me and that was not the first time I caught him stealing.

On another occasion, my CPA recommended an attorney to do my Living Trust. So, the attorney recommended that I make my CPA my Trustee. Every time I questioned my CPA about whether or not Trustees can rip my family off when I pass away he gave this speech stating that being a Trustee was not a fun job (whatever that meant). I don't remember why, but I had to put a certain amount money into the trust for something every year and I had given about $30,000 to my CPA to put into the trust.

After a few years passed, I did not trust my CPA to handle my trust. So, I changed my Trustee to my son. When I changed the trust my CPA had to give me the financial records and he told me he borrowed $8,000 from my account, without my knowledge, and asked if I wanted him to pay me back. Again, I didn't want to make any waves and I let him keep the $8,000 and never mentioned it to anyone, again. As soon as I found out about the two theft I considered them 'Water Under The Bridge' and always figure that if I changed my CPA to a new one I would get burned many times more because he may be super ignorant and cause me all sorts of problems.

While on the subject about Living Trust Trustees what I was always scared about is something that happens all the time and what your family is supposed to inherit can be totally wiped out by a crooked Trustee. Since my CPA already has a copy of all my records going back about 43 years all my CPA needs to do to get rich is start some ruckus with the IRS when I pass away and then my CPA gets to charge $250 to $350 per hour to handle something bogus that he started and then my CPA can hire his attorney buddies to really screw shi... up and everyone pays everyone and it doesn't take long for CPA and attorneys to get bills super high and of course all this money comes from the living trust until there is little to nothing left.

I may not be describing it right, but I've met several women plumbing customers who told me that when their husbands passed away the living trust was not written correctly and these women ended up broke by the time their attorneys were finished.

Scott M. · Answer

Hmmm, which movie to quote from.  "May the odds be ever in your favor" or "you feel lucky punk?"  Yes, it is a requirement but the odds are heavily in your favor.  Even if there is an issue the penalty is very small.

Kevin R. · Answer

@Jack Orthman if you got audited a copy of the negotiated check for the expense, or bank statement showing the debit or credit card payment should be enough.  Most audits are just computerized inquiries and rarely get to the level of an IRS agent coming in person. They just are not worried about the little guy ( businesses under 10 million annual gross)

Account Closed · Answer

Supposed to and need to are two entirely different animals. I cannot speak with the legal expertise the same as a CPA, but from the way my brain sees a W-9 form is the W-9 form is only for businesses' benefit e.g. for the landlord's benefit when the landlord does his taxes he furnishes the IRS with W-9 forms so these W-9 forms tell the IRS to go after the company who signed those W-9 forms and the landlord is relieved from paying income tax on the money the landlord paid to the company that signed the W-9 form.

Sorry, that was a confusing tongue-twister. But, like the 1099 form, I never ever asked a company to sign a W-9 form and the IRS never ever asked for a 1099 Form, or a W-9 Form in my 55+ years of doing business and I've paid contractors as much as $240,000 for concrete work for one apartment building, more that $120,000 for a single roof and tens of thousands of dollars and was never questioned by the IRS or any other government agency.

The funny thing about the W-9 Form is I was in business for about 35 years before someone I worked for furnished me with a W-9 Forn and I was angry and did not understand what it was for. Then, I came to my senses and understood, but even after signing them for many years, I've never ever had any other action taken in regards to W-9 Forms other than signing them and my CPA nor any agency ever did any type of accounting for them.

For example, since I run a C-Corporation I throw the 1099 Forms in the trash because customer, client or whatever is not obligated to send a 1099 Form to corporations. 1099 Forms are for sole proprietors and the purpose for them is because sole proprietors are notorious for cheating on their taxes.

I had an electrician friend who worked for many public school systems and since he was a sole proprietor the school systems sent him 1099 Forms for the amount of money they paid him. When he reached the age of 65-years old, or whatever age it was, he applied for social security and was rejected because somehow social security must compare records with the IRS and he owed something like $80,000 for income taxes and they would not pay him social security until he either paid his taxes, or until the amount due was deducted from his social security due to him.

So, giving your contractors who are sole proprietors a 1099 Form or a W-9 Form only causes them problems when they cheat on their taxes and does not cause you a problem and does not cause corporations problems with the exception of a $50 fine for each contractor and not for each transaction.

Nathan Gesner · Answer

You have an obligation to file. Turn in the IRS Form 1099 with all zeros in place of the social. If the IRS contacts you to question it, just explain what happened and they'll track him down.

Account Closed · Answer

You are correct, but my CPA nor the IRS ever questioned a missing invoice and that is what is important. Going back many years, I (you) hears a lot of b.s. from people who have been audited and I never ever had the IRS question missing records like the IRS was doing a forensic analysis. The IRS auditors are looking for blatant cheating and looking for messy and accounting and record keeping where mistakes are apparent, but when you present nice clean records the auditors know the business or person they are auditing are on top of their game and a few missing invoices is an expectation.

The difference between an accountant and a CPA is a CPA sort of certifies to the IRS that when the IRS is doing an audit that the books have already been certified by the CPA and this is true because when my CPA compiles my books before the end of the year he calls me on the phone and questions me about some transactions like when I paid $7,000 to an appliance company for one stove and one refrigerator. It was apparent that I did not pay $7,000 for two appliances for an apartment building. So, my CPA wants to make sure he can back and certify that he did seriously go through my books and can explain that $7,000 purchase to the IRS.

So, when my CPA called about the $7,000 appliances I told him that the appliances were for a high-end property in Sandy Valley that I was remodeling and I intended to rent the house. My story was not totally true because my ex-wife was supposed to move into the house and she never did. It is a long story, but I purchase the house during the 2008 to 2019 crash for $120,000 and it had recently sold for $550,000. The house was 3300 sq ft and then I spent $420,000 remodeling the house and and after spending a total of $540,000 on the house sold it for $300,000. So, it was okay to say it was okay to chalk off the $7,000 appliances as an investment in real estate and not personal.

Account Closed · Answer

My CPA always stated that the maximum I could be fined is $50 and neve mentioned any sort of 'withholding' tax problem.

I searched internet and asked what happens with someone fails to provide someone with a 1099 and this is all I found.

From what I can see on the internet, a 'withholding' tax applies to an individual's tax and not to an individual or business that fails to file a 1099 for someone else.

It makes sense that an individual or business should be held accountable, but I don't see where that is the case. Don't confuse Payee Statement in the following paragraph with a 1099.

"If a business fails to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $50 to $270 per form, depending on how long past the deadline the business issues the form. There is a $556,500 maximum in fines per year. If a business intentionally disregards the requirement to provide a correct payee statement, it's subject to a minimum penalty of $550 per form or 10% of the income reported on the form, with no maximum."The following paragraph mentions that a backup withholding tax is for when 'you' have a discrepancy with your social security number and for when 'you' are provided with a 1099, but I did not find any information stating that a person is liable to pay withholding tax for failing to provide someone else with a 1099.

"The IRS imposes a backup withholding tax when they have a discrepancy with the SSN or TIN that you or your employer provided. The backup withholding tax is only imposed by the IRS upon certain types of income as a “just in case” measure so that you do pay some of your taxes. For federal tax purposes, backup withholding is sometimes mandatory. Many people are exempt from and never experience backup withholding taxes, so many wonders what to do when they receive the notice in the mail. There are a few instances when you may be subject to a backup withholding, like when you fail to report or have provided an incorrect taxpayer identification number (TIN). Most payments that are reported on Form 1099 can be subject to backup withholding. Payments from a Form 1099 are subject when you receive it from someone who doesn’t have your Social Security number. You may also recognize the phrase “subject to backup withholding” if you’ve ever filled out a W-9 form. Your employer is always required to file a form with the IRS, whether it be a W2, a 1099-MISC, or a 1099-DIV. The IRS then uses these forms to verify that the income you reported matches the income your employer says you earned. If for any reason your name, SSN, or TIN don’t match each other, this causes trouble on behalf of the IRS when they process your return. This is why you should always double check your W-2 form around tax season to make sure they reported the right numbers."

Account Closed · Answer

I am 100% positive the real accountants and CPA's are going to say you need the receipts, but I've been audited several times by the IRS and the way I do my books and keep my records accurate-to-the-penny is I create a folder for every month that I've been in business. Obviously, if I started my business In March 2021, then I put a label on the folder saying

Bank of America -  MARCH 2021                 Month 1

This way, if we are dealing with another back account we know what bank this folder pertains to.

Inside the folder for Month 1 is:

1) Bank Statement2) We enter every record on the bank statement into our database that I created. You could use a spreadsheet.3) I give every deposit and debit on the bank statement what I call an X-Number that is generated automatically by my    software)4) This is important! I put the X-Number on three things. I put it on the line-item on the statement, on the check image n the statement and your contractor contractor, vendor receipt, or whatever you have and  then I put every receipt in the folder in the same order as the X-Number.5) I print a Category Report for Month 1 and here is how your records are accurate-to the penny. When the total debits and total credits on your report are exactly the same as your bank statement then your records are accurate-to-the-penny.6) At the end of the year I tell my database to print one report for the entire 12 months and I create from my software an Excel spreadsheet for the entire year and send three things to my CPA.7) For our each apartment building we create one sheet that shows how much each tenant owe and we put this sheet and all other information for the month in the monthly folder.

At the end of the year we send our CPA the following:

1) The 12 folders for the entire year containing inside each folder the Category Report for the month, the 1 monthly bank statement and every receipt for every transaction with the exception of missing receipts.

2) One Category Report for the entire year

3) an Excel spreadsheet your accountant or CPA can use to upload your records to his software.

The answer to your question regarding missing invoices is; I own several apartment buildings and I will guess that 95% of the receipts are missing for contractors I do business with, but since my records are so accurate and so organized that an auditor can ask for any random transaction, I can locate my transactions within a few seconds and since the auditor is asking for random transactions I will produce most transactions and when some are missing it is no big deal because even though many payments to contractors are made payable to the contractor's personal name the IRS knows that there is a significant amount of money we pay for repairs and they know that we do business with sole proprietors and I have never been questioned by my CPA nor any general liability auditor nor the IRS or any other government agency.

I will say that a good CPA will tell you to keep every receipt and that makes sense, but as long as you have books that are organized and you produce most of your receipts when asked then I don't see any problem and never had a problem with receipts in 55+ years

You may notice that I did not mention putting any sales receipts in the monthly folders. I have about 100 large plastic storage boxes that contain invoices for my plumbing and construction business dating back to 1973. Again, I can locate any invoice within minutes because I created a database that tracks the invoices in each box, but during my 55+ years I have never ever sent my sales receipts to my CPA nor have I ever sent them to an auditor because if any auditor wants to know what my sale are then the auditor only needs to look at my bank statements. I hardly doubt that Mc Donalds or Burger King needs to show the IRS every paper receipt for every hamburger they sold.For my real estate, it is not worth trying to save a few dollars by playing with the books because we make a ton of money and I don't have the time, energy nor the will to want to try to net a few more dollars. There are many businesses like restaurants where owners can get by without paying income taxes for many years and you always know who these are when they have signs saying, "CASH ONLY" but for the real estate business it is not worth trying to say an apartment was not rented when it was and try to hide the cash income. When we do get audited the IRS and banks always ask for copies of the leases and rental agreements and and trying to save the 20% to 25% income tax you pay is being greedy and stupid.

I try to keep my receipts, but I don't get a high percent of them from contractors and I lose a high percent. I suppose, if there is a problem the IRS can give you time to get the receipts and then you need to put the heat on your contractors.

Account Closed · Answer

Incidentally, my daughter moved last Saturday to go to college in Fairbanks Alaska because she applied to 19 colleges for a Phd and that was the only college that accepted her and will give her a stipend (or whatever you call it) for $17,000 per year plus the college tuition. She already has 6 years of college in California and I was totally against going to college where it gets to 50 degrees below zero and am wondering how does a human get to their college in that type of weather. Will a Ford Explorer motor really start even with some sort of engine heater and what happens when the transmission and gear box oils are that cold.

I lives in Massachusetts until I was 18 and I lived in Idaho for 3 years and I can remember it was so cold that when I dropped my car keys in the snow it was so cold I could not dig into the snow to find my keys.

How do you manage in that cold weather?

Any problem if I don't issue 1099 to handyman with job over $2K?

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