What Tax Form Do I Need for My Rental Income? | Advice for the Phoenix Landlord
As a Phoenix property management company, our goal is to make managing rental properties as easy as possible. Unfortunately, the Internal Revenue Service (IRS) does not always cooperate with that goal. If you are about to file your 2020 taxes, you may receive or be required to file one more form than normal. Because of confusion in the Protecting Americans From Tax Hikes (PATH) Act of 2015, 1099-NEC forms will be brought back this year. Even though you may have to file or receive this new form, you will also need to file a 1099-MISC as well.
What Is the 1099-NEC?
Form 1099-NEC was just reintroduced by the IRS to help people report their self-employment income. Previously, self-employed individuals used a 1099-MISC to report this income. This year, the IRS adopted 1099-NEC as a way to clear up the different filing deadlines for 1099-MISC and 1099-NEC forms.
Business taxpayers will need to use a 1099-NEC to report nonemployee compensation. This applies if you made payments worth $600 or more to someone who was not an employee. For example, you would use this form if you hired a plumber to fix your rental or a freelance designer to create your website. You may also receive this form when you are paid rental income from a property management company.
This form must be sent out before January 31. In 2021, this deadline fell on a Sunday. Because of this, businesses had until the next day to send out their 1099-NEC forms this year.
Nonemployee compensation covers a variety of different payments. According to the IRS, nonemployee compensation essentially involves payments that are made to people who are not your employees. The payment can be given to a corporation, individual, estate or partnership. Additionally, the payment must be made for services that occurred because of business operations.
Businesses are required to file a 1099-NEC if they paid someone at least $10 in royalties. For other services, the requirement kicks in after you make $600 in payments. Likewise, you must file a 1099-NEC if you have had to withhold federal taxes because of backup withholding rules. Nonemployee compensation includes any benefits, commissions, fees, prizes and awards that are given to a nonemployee.
How Is This Year Different for Landlords?
If you do not remember filing a 1099-NEC before, you are not alone. The IRS has not used this form since 1982. For the last few decades, businesses and property owners have generally turned to Form 1099-MISC instead. Until this year, you would have written nonemployee compensation on box 7 of a 1099-MISC.
In 2021, the IRS will be requiring landlords to use the 1099-NEC to report payments to independent contractors. Normally, this form is used for reporting payments independent contractors receive that are worth $600 or more. If you paid an electrician or other contractors more than $600, you are required to file this form.
The PATH Act was set up in 2015 with different due dates for various kinds of income normally reported on a 1099-MISC. Because of this, some filers received an undeserved penalty notice. As a result, the new 1099-NEC basically separates nonemployee compensation from the other kinds of payments in a 1099-MISC. For the 1099-NEC, the filing deadline is February 1, 2021.
Even though you will most likely need to file a 1099-NEC now, you will still have to file a 1099-MISC as well. The 1099-NEC is designed entirely for independent contractor payments worth $600 or more. If you are filing a 1099-MISC, you will also notice that the form has been reorganized this year. Instead of filling out nonemployee compensation in box 7, you will now see a check box for reporting direct sales worth $5,000 or more. If you are filing a 1099-MISC as well, you will need to electronically submit your 2020 1099-MISC by March 31, 2021.
Who Has to File a 1099-NEC?
If you pay nonemployees for their services, you will need to fill out a 1099-NEC. The payments you send to architects, accountants and attorneys will most likely be reported using this form. Likewise, any gig worker you hire will generally be paid through this form.
Prepare for Your 2020 Taxes
The tax deadline is rapidly approaching for 2021. In order to prepare, you should check out the tax software and filing systems you will need this year. You can get a 1099-NEC through the IRS website. If you are uncertain about how to file this form, you can visit the IRS website to get the form and to find out more information.
In addition to potentially receiving a 1099-NEC for your rental income, you may also be filing 1099-NEC forms for your vendors, suppliers and contractors as well. It is important that you file your taxes correctly, or you could end up facing a penalty. If you are uncertain about which forms you should use, you should contact your tax accountant and get help.
You can also check out the IRS website to get more information about the latest requirements. The IRS website has information about other tax forms and deadlines as well. Through careful planning and the help of a tax accountant, you can make sure you file the correct forms on time for all of your rental income and nonemployee payments.
If you have any questions about taxes, please speak to your tax accountant directly. However if you have any questions pertaining to Phoenix property management, please contact us at Service Star Realty.
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