questions regard house cleaning deduction for rental room.

[tututu1]

i have a room rented out in my house and paid a house keeper to clean rental room , but that is self-employed person doesnt not have any form of receipt,so in this case, would the cost still deductible as maintenance cost? i am afraid i donot have any receipt to proof IRS when audited.

[VolvoGirl]

Pay them by check.  The check is your receipt.

[tututu1]

that is good idea, however since the person is self employed so he does not accept any online payment or check, he only want cash, so using check was not an option for him. tried and refused, which i can understand as he runs risk of bad check.

these people are offering very competitive rate compare to the company backed one, so does this mean i can not claim these deduction since there is no proof?

thanks. 

[Critter-3]

They MUST provide you with a completed W-9  BEFORE you pay them one thin dime so you have the info needed to issue the required 1099-NEC next January.  If they will not conform with this requirement you don't need them.    

Also see if they will take a ZELLE payment ... that would give you a paper trail.  Or take a cashier's check or money order if they fear the check bouncing.

Even if you pay in cash you have the right to get a receipt from them if they are running a legitimate company.  If they don't think hard on using their services.  

[tututu1]

thanks for your suggestion, but unfortunately no, they donot want to receive anything can be traced for their income. it is like those restaurants for cash only, they donot want to report it as their taxable income. thus they offer competitive rate for the service. 

so i am not sure if in this case, we can legally include in our deduction? 

[Critter-3]

You can deduct the expense however it will not hold up in an audit  so  DON'T do it ... if they will act as an legitimate company then how can you trust them in your property ?   Think about this ... is it worth it  for the savings ?   Are you willing to be sued by them for getting hurt on your property if they are not acting like a legitimate company with workman's comp or any kind of business insurance?  What happens if they burn down your home ?   Your liability  insurance may not cover the damages.  

[tututu1]

@Critter-3 thank you, there are many of these freelance people providing services, i hire them for cleaning the tenant room ($25 for bed&bathroom) and also making dinner for tenant ($5 per meal), these are all ways to attract tenant for renting, you know it is hard to rent out a room:(.

so totally i spend $150 per month for these services, which is about $1800 per year. but these are all cash deal with no receipt, the best to get is a hand written on paper like "i receive $xxx from xxx for service xxxx on day xxxx". will that count as a receipt by IRS?      

so if i deduct these amount, and got audited by IRS that i had no real receipt to proof, so what will happen? does it really worth the risk of being audited to deduct $1800 expense?

thanks. 

[Critter-3]

Any paper trail is better than no paper trail but if you pay them more then $600 per year you really should be issuing a 1099. 

[tammytullis]

you need to issue her with a 1099, assuming she earns more than $600/year.  You need to be tax compliant that you are hiring people who are paying taxes.  If she only wants to be paid in Cash.  Then there is no real paper trail.  It cannot be deducted as house/office Maintenace.

[tammytullis]

no you cannot legally include in your tax deduction.  In fact you may be in trouble for hiring staff who do not pay taxes

[Carl]

they donot want to receive anything can be traced for their income.

That can be seen as you aiding and abetting them in violation of tax law. I suggest two things.

1) They provide you a completed W-9 so that you can legitimately report what you pay them as a valid rental expense. You can print a blank W-9 at https://www.irs.gov/pub/irs-pdf/fw9.pdf and have them fill it out completely. They are required by law to provide you with their SSN or ITIN for the 1099-NEC you would be required to issue them since you pay them more than $600 a year, and a valid mailing address for you to send the 1099-NEC to.

2) They sign a document of receipt each and every time you pay them, for the amount you pay them.

If they will not comply with both items above, then you should terminate their services immediately.

[tututu1]

@Carl thanks for your suggestion, so does a hand written note on paper works for the purpose? and does i had to satisfy both 1&2 to be considered legal by IRS for rental related expense deduction?

yes, but since i cannot afford services from formal company (they are too expensive), only freelance price i can afford to provide cleaning and free food to tenant in exchange for rental :( if i cannot deduct, means i am loosing money twice by service payment and no tax deduction. 

[Critter-3]

If you have a formal rental where you provide cleaning (maid) services and feed them then you are really not a passive rental on a Sch E but a B&B reported on a Sch C.  And if you are not taking in enough to cover expenses then (aside from raising the rent)  you have either a hobby or a not for profit rental on which you cannot deduct the expenses at all.   I HIGHLY  recommend you seek local professional assistance to get educated on what you are and how to report it  as well as the local/state requirements/rules. 

[SweetieJean]

he runs risk of bad check.

Then pay with a money order.  But it sounds like the cleaner is not claiming the income at all. Don't be guilty of abetting tax fraud.

[tagteam]

I agree with @Critter-3; if you are providing maid services and meals to short-term renters, you are essentially operating something on the order of a Bed and Breakfast, which is basically a business (not a passive rental) and should be reported as such (e.g., on a Schedule C).

If the service provider you are using refuses to provide some sort of Tax ID number, then you must still issue them a 1099 and backup withholding is required.

See https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding