On September 27, 2010, President Obama signed the Small Business Jobs Act into law. Overall, this is great news. It extends successful SBA recovery loan provisions, more than doubles the max loan size for the largest SBA programs, establishes a new $30 billion dollar small business lending fund, creates eight new small business tax cuts, and on and on and on.
Download the summary or put yourself to sleep reading the full text. Here’s a link from the senate with more related documents, including the two I just referenced.
So this is great news for many small businesses, although we’re still trying to figure out how it might benefit VerraTerra or VerraTerra PM (Seattle Area Property management). There is one glaring disadvantage that was put into this jobs act and it directly affects VerraTerra PM and our clients
What TerraVerra (Seattle Area Property Management) will Need from Our Clients - 1099-MISC
On Page 150 of the full text, you’ll find Subtitle B, Part 1 – Reducing The Tax Gap. In short, what this new rule says is any individual homeowner that has a rental property must issue a 1099 to any vendor, contractor, service provider, etc. that they pay more than $600 in a calendar year. This rule is supposed to start when you file your 2011 taxes so that means landlords need to start keeping good records and receipts of all their expenses for their rental property.
For VerraTerra PM (Seattle Area Property management) clients, what this means is you’ll have to issue us a 1099-MISC for our service charges. From our understanding, it should only include our service fees. Expenses that you indirectly reimburse us for should not be included. We’ve got just over a year to figure out the details, but as a value added service, VerraTerra PM will be assisting our clients in preparing this 1099 form when the time comes.
1099′s to All Businesses and Service Providers
For 2011, this applies to unincorporated businesses and service providers. That changes in 2012 ….and this is where it gets ridiculous. Beginning in 2012, landlords are expected to issue 1099′s to ALL businesses and service providers where they pay more than $600. So this means you may have to issue a 1099 to the likes of Home Depot, Lowe’s, Staples, etc. The one caveat is if you pay these companies with a credit card, because of new reporting rules that the credit card companies have to follow, then you as the landlord do not have to issue 1099′s to those companies; the credit card companies will handle that portion of the reporting.
More Paper Work for All!
I think this rule was put in as a great idea to be able to better track where taxes are owed. They project that this provision will raise $2.5 billion dollars over 10 years. The problem with it is not just the added time and paperwork burden it puts on businesses and landlords, but the added paperwork it will create for the IRS.
From how we understand it, each of our property management clients will have to give us a 1099 and file an information return to the IRS. We as the property management company will then have to issue 1099s to all the contractors we hired over the year as well as filing information returns to the IRS. These contractors in turn will have issue 1099s to their suppliers, and so on and so on. I can only picture how much paperwork this will generate.
A couple accountants we spoke with do not believe these rules will survive as they are written. The Journal of Accountancy (the primary publication of the American Institute of Certified Public Accountants) have sent letters to the House and Senate with their concerns of the impact this new rule will have on businesses and individual rental property owners. You can read their detailed summary and opinion of the new rule.
Countless 1099 Forms $$
However, Janet Novack from Forbes.com doesn’t believe Congress will back off from this rule. The money it’s supposed to bring in is too much for them to shy away. How typical of government right? Bonnie Lee from Entrepreneur.com is on my side of the fence though, and presents some more reasons why this rule is a bad idea including just more cost in bookkeeping, accountant fees and software costs. Only time will tell if we’ll all be filling out countless 1099 forms. It’s understandable why the feds would want this, but it should be reserved for only those that are primarily in the business of renting properties or properties that are professionally managed. I’m pretty sure the individual homeowner who has a rental house may not even know about this new rule.
As much as I would like less paperwork to do, VerraTerra PM (Seattle area Property management) already keeps very detailed records for our clients and this should just be a matter of filling out a bunch of 1099′s. Getting each contractor’s EIN will be a bit of a pain though.
The VerraTerra (Seattle Area Property Management) Way!
If you are thinking about renting your house, give VerraTerra Property Management a call at 425-223-4828 or send us an email and we’ll show you how we do things differently. We offer homeowners options on Seattle area property management and tenant placement services.
Each option accommodates different needs for different homeowners. We are your Seattle area real estate consultants and research specialists. We provide the most effective and cost efficient marketing materials and strategies to find well qualified tenants. We’ve put together a solid and fast screening process that finds us great tenants and streamlines our management services to help you save money. This is what we do for you. This is the VerraTerra way.
Sources:
The White House Blog
The United States Senate Committee on Finance
Entrepreneur.com
Forbes.com
Journal of Accountancy
US Small Business Administration
About James
