Flipping Houses- Hiring Employees..HELP!

[Account Closed]

Hello all. I live in Texas and am a newbie in the real estate investment business.
I formed an LLC to put all the investment properties under. I have my first foreclosure under contract and close on it next week.

I really need help from a flipper/rehabber who has knowledge about the process of hiring employees. I know a lot of investors who pay cash to their day laborers/independent contractors for a variety of reasons and I'm assuming you know why too...

My CPA told me this can get you in some serious high water with the IRS if you do not report the wages you are paying out. She suggested I have all my day laborers who are not independent contractors fill out a W-2 form and pay them by payroll. She suggested I have all the independent contractors supply me with a social, TIN # or EIN # in order to submit a 1099-MISC to the IRS at the end of the year and pay them by certified check.

But what if I only use a day laborer for let's say 3 days? Why would I formally employ them?

Does anyone have any suggestions/comments or a better method for this situation?

Any help would be greatly appreciated!!

Thanks,
T&B Realty of Texas, LLC

[Jeff S.]

This is not legal advice, just what we have practiced. But, we've had family or whomever basically due contract type work for short periods; less than a week - they come to the site, provide there own transportation, have control over when they show up and how the work (usually demo or landscape type work). We have them fill out the W-9, I-9 just like any other sub, and when they hit the threshold for 1099 we issue that at the end of the year. So, if we only use them a handful of times and pay under the threshold for 1099....we still are able to claim the fees paid and don't have to issue.

Just make sure you set up a system/process for not blurring the lines b/w contractor and employee and you should be golden. That IRS link above has most of it spelled out in terms of creating an internal checklist for your business.