Only 20% of adults have a firm grasp on how their property tax is calculated. 25% say the same for federal income tax.
The already murky waters get even darker as a landlord. Your massive stacks of paperwork grow like weeds at tax time. Cutting through them alone is a time-consuming, expensive task.
Read on to learn how to navigate tax statements and 1099s as a landlord.
Types of Tax Statements and 1099s
One of the first things to understand about landlord tax statements and 1099s is which type to use and when.
A general 1099 is used to report earnings, interest, or dividends for non-traditional businesses. This includes landlords as well as:
- Vendors
- Contractors
- Small business owners
A 1099-MISC is used for reporting miscellaneous income and expenses. This includes rent payments over $600. It can also include healthcare or attorney fees.
A 1099-NEC is for reporting what you paid other professionals. It's used to report non-employee compensation of over $600.
A 1099-K is used to report credit card and electronic payments. More and more tenants prefer these methods for rent payment.
How to File Tax Statements
Start with tax statement preparation. Send a W-9 to tenants and anyone you work with. It'll help you get all the necessary information, such as:
- Name
- Taxpayer ID
- Address
- Total amount paid for the year
Now you can start to file tax statements. File a 1099 to report rent payments of over $600. Send a 1099 to anyone related to the business who earned over $600, such as:
- Independent contractors
- Vendors
- Professional service providers
You'll also need other tax forms. Report your rental income and expenses on a 1040 or a Schedule E form.
Penalties for Non-Compliance
You must mail all 1099-NEC forms to their recipients and file them with the IRS by January 31. 1099-MISC forms must be mailed and filed by March 31. Failing to do so can have major consequences.
You can lose out on potential deductions. You could face financial penalties of up to 20% of unpaid fees. There's also the potential for an IRS audit.
How to Stay Compliant
One step can help you avoid two major mistakes. It'll reduce errors and keep you from scrambling to find information at the last minute. That step is to keep careful rental property accounting records of all your income and expenses.
Don't leave money on the table by missing out on deductions. Many expenses can be written off, such as:
- Marketing
- Maintenance
- Depreciation
- Insurance
- Utilities
- Interest
- Travel
Check the tax laws in your area. You could become non-compliant if you don't know about new codes.
Use a property manager to take over all your financial needs, including the daunting task of landlord tax filing. It'll help keep you compliant, efficient, and profitable.
Get Professional Guidance with Tax Statements and 1099s
Handling tax statements and 1099s as a landlord starts with knowing which forms you need and gathering the information. Keep careful records and look at the current tax codes. A property manager will be your right-hand man throughout the process.
PMI Cowboys Realty is a full-service property management company serving the Dallas metro and surrounding areas. Our team of experts offers a range of services to help you meet your needs. Contact us today to maximize your rental income and minimize your expenses today.
