Individual investors may see rental properties as an easy way to make passive income. Considering that these types of investors own about 14.3 million rental properties in the United States, you are far from the only one with that mindset.
However, one thing you have to remember to do as a property owner is to fill out tax statements and 1099s.
What do you need to know about this process? These are three of our biggest tips.
1. Keep Track of Your Contractors
The first thing you are going to want to do is to keep track of the contractors and the services that you use from them throughout the year. The reason for this is that you have to fill out a 1099 form for almost every contractor that you hire.
However, it is important to understand what qualifies someone for a 1099 form. When it comes to independent contractors, this would be anyone that you paid more than $600 to for services throughout the year.
For example, let's say that you hired a roof contractor for some roof repair services. You would need to file a 1099 form for them if you paid them more than $600 for those services in a calendar year.
The same goes for your landscaper as well if you paid more than $600 for their services throughout the year. The bottom line, keep track of these types of expenses carefully.
2. Keep Track of Rent Collected
In the eyes of the IRS, any rent that you receive from tenants throughout the year must be added to your gross income. This is mainly for rent that you receive before the calendar year ends.
So, let's say that you have 10 tenants that each pay you $1,500 in rent. You would have $18,000 from each tenant or $180,000 total.
That is income and it will be taxed accordingly if you do not have any major expenses such as the ones that were described above.
3. Have the Right Information
Finally, for these types of forms, you need to make sure that you have the right information to complete these forms accurately. Obviously, you are going to have to know how much you paid independent contractors.
However, this is not all. You need to know other things such as their business or personal address, their tax ID number, the name of their business (if applicable), first and last name, and more. Make sure you collect this information before you finish doing business with other services.
File Tax Statements and 1099s Properly
These are a few tips that you can use to file the tax statements and 1099s that you are required to fill out. To make life easier on yourself, make sure you keep track of what services you use for your rental property throughout the year, and the rent that you collect from each tenant, and make sure you have the appropriate information for your independent contractors.
You can use a property management company to help you get organized. Message Wolfnest here with your questions.