What you need to Know about 1099 Reporting

What you need to know about the new 1099 Reporting

For 2010, all persons engaged in a trade or business who make certain payments in the course of that trade or business of $600 or more in any tax year to another person must report that information to that person and to the IRS.  A taxpayer whose rental real estate activity was not considered a trade or business wasn't subject to this reporting requirement, (that distinction has changed for 2011).

Beginning in 2011 (for payments made after December 31, 2010), the new law provides that a person receiving rental income from real estate will be considered to be engaged in a trade or business of renting property for information reporting purposes.  Therefore, if you receive rental income from real estate you are generally subject to the same information reporting requirements as taxpayers engaged in a trade or business.  For example, if you make payments of $600 or more during the tax year to a service provider (such as a plumber, painter, landscaper, snow remover, or accountant) in the course of earning rental income, you are required to provide an information return (typically Form 1099-MISC) to the IRS and to the service provider.

These new rules do not apply to the following situations:

(1) any individual who receives rental income of not more than a minimal amount, as determined under IRS regulations (not yet defined);
(2) any individual (including one who is an active member of the uniformed services or an employee of the intelligence community) if substantially all rental income is derived from renting the individual's principal residence on a temporary basis; and
(3) any other individual for whom the new reporting requirements would cause hardship.

What you need to do now:

(1) If you operated a trade or business in 2010, you need to mail 2010 Form 1099’s to the vendors by January 31, 2011.  File the necessary copy with the IRS by February 28, 2011.
(2) If you operate a trade or business, or receive rental income from real estate in 2011, you need to obtain a completed Form W-9 from each vendor.  They are required to provide this to you before you pay them.  If, at the end of 2011, you have paid the vendor $600 or more, you will need to complete 2011 information returns.