Cosmetic Tree Removal On my Rental Property. Should I send the LLC a 1099?

[RealestateNJ]

I payed about $11,000 for cosmetic tree removal on my rental property. I hired an LLC to have them removed. I paid them with a check from my LLC account for the first installment and cash from my LLC account for the second installment.  Do I need to send them a 1099? 

[Opus 17]

You should have given them a W-9 form before you hired them.  On that form, they either give you their tax number so you can send a 1099, or they certify that they are not subject to the 1099 rules.  You keep the W-9 as proof that you complied with the 1099 rules either way.

As a business, you are required to issue a 1099 if you pay more than $600 to a person, sole proprietor, single member LLC, multi-member LLC or partnership.  You don't have to issue a 1099 to an S- or C-corp, or to an LLC that has elected to be taxed as an S- or C-corp.  That's why you get the W-9 form before you hire them, because they will certify if they are exempt from the 1099 requirement.

Get a W-9, and issue the 1099 based on what they tell you.  Since this was compensation for a service, it will be a 1099-NEC. 

In some cases, if the payee refuses to give you a signed W-9, you are required to withhold 24% of the payment and send it to the IRS as backup withholding (they get credit for it when they file their tax return).  You can be subject to penalties if you don't take backup withholding when required. 

https://www.irs.gov/instructions/i1099msc#idm140364727514192

https://www.irs.gov/pub/irs-pdf/fw9.pdf

[AmeliesUncle]

Just to add one more bit of information ... you said this is for your rental property.  If your rental rises to the level of a "Trade or Business", the answer above applies.  If it does NOT rise to the level of a "Trade or Business", then no, you do  not need to issue a 1099.

[Opus 17]

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@AmeliesUncle wrote:

Just to add one more bit of information ... you said this is for your rental property.  If your rental rises to the level of a "Trade or Business", the answer above applies.  If it does NOT rise to the level of a "Trade or Business", then no, you do  not need to issue a 1099.

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This is true, only businesses need to issue 1099s and not all landlords are classified as businesses.

However, it is also true that the IRS is ok with you issuing a 1099 even if you aren't required or aren't sure, on the "better safe than sorry" principal.

[Carl]

Actually, I believe that you would issue a 1099-NEC, and not a 1099-MISC.

In general, the 1099-MISC is for passive income; mainly rent and royalty income. The 1099-NEC is for earned income. That $11K you paid for tree removal was earned by the entity you paid. So a 1099-NEC is what would be issued to them. Note that if this 1099 will be issued for the 2020 tax year, then you'll be paying a late reporting fine, as you were required to have it issued not later than Jan 31 of 2021.

Generally, A rental property owner that reports rental income/expenses on SCH E as a part of their personal tax return doesn't need to issue a 1099 regardless of the amount. However, with the introduction of the QBI deduction, it's smart to issue one anyway, as it may help support any claim to that QBI deduction.

Now I myself don't claim the QBI for my rental properties, because I can't come anywhere even close to meeting the requirements to claim it. But still, if I was in your shoes because of the amount, I would issue the 1099 anyway.

On a side note, you paid $11,000 to remove one single tree? That's beyond outrageous to me, here in NE Florida. I just had a 70-80 foot tall maple removed from a rental property and it costs me less than $1000 for that. I"m just curious as to what makes your tree removal cost so much.

[RealestateNJ]

It was for about 13 huge pine trees