Lupe Ruiz: Notary Chula Vista

Stay Compliant! Rental Owners Hit with New 2011Reporting Requirement.

If you are a rental owner and make payments of $600 or more during 2011 to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income, the 2010 Small Business Jobs Act says that you are required to provide an information return (typically Form 1099- MISC) to the IRS and to the service provider. To do so, you must obtain the payee’s name, SSN, and contact information before making a payment.

The IRS provides Form W-9 for that purpose.

There is a “Catch-22” you need to watch out for.
Suppose you call a plumber and pay him $400 for a service call at your rental property and don’t bother to have him complete and sign a W-9 since the amount is under $600. Then, later in the year, you need him again and pay another $400 for the second service call at the rental, and again fail to obtain the completed W-9. Now, you have a 1099 filing requirement but do not have the information needed to file the information returns in 2012. If the plumber can’t be found, you are left holding the bag.

Moral of this story:
Always collect a completed W-9 from the payee before paying him! What happens if you don’t meet your filing obligation?

Well, there are monetary penalties! As part of the 2010 Small Business Act, the penalties are doubled for information returns required to be filed after 2010. So, if you are 30 days late filing the information return with the IRS or furnishing a copy to the payee, you are subject to a $30 per-payee penalty.

If returns are more than 30 days late but filed by August 1, the penalty per payee is $60; if filed after August 1, the penalty jumps to $100 per payee. The penalties can be substantial, and you are cautioned to establish a procedure for obtaining W-9s from your service providers before the beginning of 2011.

Note: Payments to incorporated businesses and those made for the purchase of merchandise are not included in these requirements until 2012.

D'Ruiz Services
oficinaluperuiz@gmail.com
1680 Broadway Ave, Suite D, Chula Vista, CA 91911
Tel: 619-425-9388
Fax: 619-427-3499