Nantucket Real Estate Agent Blog

Recently I was meeting with my bookkeeper on Nantucket, Meghan Blair-Valero she owns Fogged In Bookkeeping.  She was explaining to me the new mandatory tax rules for homeowners of vacation rental properties.  This is very important information and all property owners should be aware and understand.  Below I am reposting Meg's update from her website where she explains the basics of the regulations.  If you have questions speak to your accountant, tax attorney or if you need help on Nantucket give Meg a call at Fogged In Bookkeeping Tel. 508 825 8844

"Up until December 31, 2010 landlords who were not in the trade or business of property rental, such as the beach house owners or those that own a few small rental properties, were treated as engaged in a “passive activity” and are not subject to the Form 1099 reporting requirements.

That’s all about to change…
Tucked into the Small Business Jobs Act enacted in September 2010 is a provision that expands Form 1099 reporting requirements to include independent landlords, even those owners who have turned over all or most management duties to someone else. As a result, landlords must issue a Form 1099‐MISC to any independent contractor who provides services and is paid $600 or greater in a calendar year, beginning with payments made after December 31, 2010.

How Does this apply to me

If you have a cottage or rental home you have casually operated in the past, or maybe you have a basement apartment you rent then you are no longer expempt from the 1099 requirement.

If you never completed a 1099 form in the past for your caretaker, painter, HVAC guy, cleaner, or other service provider you now will.  All service providers, that are not incorporated, and are not paid  by debit or credit card, paid more than $600 will need to be issued a 1099 for their services and thier services ONLY.  No 1099 should be issued for materials, subcontracted services from another subcontractor, or for payments you made with your credit card.  Do you pay a web developer to do a website to list your house?  Does a cleaning company come do your turn overs? Do you pay a caretaker?  You will now need to complete 1099 and 1096 forms for all.

What If I Don’t?

Taxpayers should also be aware that in addition to creating a new reporting requirement, the Act increases the penalties for failure to file a correct information return. The first‐tier penalty increases from $15 to $30; the second‐tier penalty increases from $30 to $60; and the third‐tier penalty increases from $50 to $100. For small business filers (with average annual gross receipts under $5 million), the calendar‐year maximum increases from $25,000 to $75,000 for the first‐tier penalty; from $50,000 to $200,000 for the second‐tier penalty; and from $100,000 to $500,000 for the third‐tier penalty. The minimum penalty for each failure due to intentional disregard increases from $100 to $250.  This means that if you knew you were supposed to file and did not a $250 fine per 1099 you fail to file can be assessed.

What Now?

You need to keep track of all your expenses carefully.  Going back at the end of the year and browsing over your check book won’t be enough.  It is our suggestion that you:

1.  Collect W-9 forms from all services providers regardless of business entity type or amount paid.  Get the from the first time you do business with someone and you don’t have to worry about it again later.

2. Consider signing up with the IRS’ TIN Matching service (866‐255‐0654).
Instructions can be found at http://www.irs.gov/govt/tribes/article/0,,id=131207,00.html.
This allows you to verify tax i.d. numbers before you file.

3. Be consistant in your method of payment to a vendor.  If you mix your method of payment to your service providers you will have to pick back through your accounting to complete the required government forms.  If you are using QuickBooks the 1099 function does not differentiate between payment types and you will cause a reporting error by 1099 for payments paid with credit card and cash/check.

4. Keep detailed records of who you paid what, how you paid them, and what you paid them for.  You will need to be able to determine what the fees for their services alone totaled.  If a caretaker bills you for the plumber, carpenter and a service fee you would only issue a 1099 for the service fee.  He is responsible for sending 1099s to the plumber and carpenter. Don’t leave this until the end of the year because most likely you will not beable to create a log of who you paid after the fact.

If you feel you can’t do this or just plain don’t want to it is a good idea to contact a bookkeeper or accountant familiar with the new rules that can help.  Be aware that in order to complete 1099 forms the bookkeeper must be registered with the IRS and have a current PTIN number.

To Contact Fogged In Bookkeeping for help with your rental 1099s please call 508-825-8884"