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- February 12, 2024
Form 1099 for Realtors: What You Should Know?
The tax season is here, and it can give some jitters to taxpayers, especially real estate professionals! Just like all taxpayers, they must adhere to their reporting duties. At CROWNGLOBE, we work with many professionals and help them stay compliant. The most common questions we encounter while consulting them are: “Can I get 1099s?”, “Which Form applies to me: Form 1099-NEC or Form 1099-MISC?”
As this is a very common but important question, we decided to answer it in detail. In this blog, we will dive deeper into Form 1099 and help you understand every bit of it.
Let us begin.
What are 1099 Forms?
As per IRS regulations, not all incomes fall under the scope of traditional wages, salaries, and tips. So, to track such incomes, the IRS employs 1099. The realtors often confuse about which form 1099 applies to them, 1099-MISC or 1099-NEC.
So let’s understand the difference between the forms and which one applies to you.
Form 1099-MISC vs Form 1099-NEC: What’s the Difference?
Traditionally, real estate professionals often received Form 1099-MISC for miscellaneous income reports. This form includes payments made to independent contractors like real estate agents, brokers, and property managers for services rendered as non-employees. But when would a realtor get Form 1099-MISC? Well, if the realtor’s earnings from any client or source exceed $600, the realtor receives form 1099-MISC.
However, there have been some changes recently in the reporting process for real estate professionals’ income via 1099 forms. The IRS has introduced Form 1099-NEC for such incomes. This simplifies the reporting of non-employee compensation.
From the 2020 tax year onward, the IRS mandates using Form 1099-NEC for reporting non-employee compensation. This means all payments, including client payments, commissions, or any other non-employee earnings received by real estate professionals that surpass the $600 mark, should now be documented on Form 1099-NEC.
Real estate professionals must know about this difference to ensure accurate income reporting. If you use an incorrect form for income declaration, your tax return might get some discrepancies. Ultimately, this can lead to a full-fledged inquiry by the IRS. So it’s better to stay informed, consult a professional like CROWNGLOBE, and avoid such hassles.
Eligibility for Receiving 1099s
Those in the real estate sector earning non-employee compensation are due a Form 1099-NEC if their annual income reaches $600 or above. This compensation can be anything like commissions, earnings from rental properties, referral bonuses, or any payment from their real estate activities.
Form 1099-NEC is mandatory in the following cases:
Case 1: Rental Income
Property managers overseeing rental properties are entitled to 1099-NEC forms from the property owners.
Case 2: Referral Fees
Agents gaining referral fees for connecting clients with other industry professionals should anticipate receiving 1099-NEC forms.
Case 3: Commissions
Independent contractor realtors who secure commissions through property sales must receive a 1099-NEC from their brokerage firm or direct client.
Case 4: Miscellaneous Earnings
Additional non-employee earnings, such as consultancy fees, property staging, or real estate photography exceeding $600, warrant reporting on a 1099-NEC.
Seems a bit headache, right? Sometimes, it can be! Keeping meticulous records of all income streams, getting necessary forms, and staying compliant can hinder your routine business. But it’s necessary, too. That’s where professionals like CROWNGLOBE can assist you in staying compliant. We have a team of experts who specialize in realtor accounting and taxation. Every year, this team helps a lot of realtors stay compliant.
Who is Obliged to Issue Form 1099-NEC in Real Estate Transactions?
Let’s say you are a real estate professional. If you have compensated individuals or entities for non-employee services, you must provide them with 1099-NEC forms. Here are some important points to keep in mind in such cases:
- Minimum Payment Threshold: A 1099-NEC is necessary for non-employee compensation totaling $600 or more to a single recipient within the tax year.
- Filing Deadlines: Recipients must receive their 1099-NEC by January 31st following the tax year. For IRS filing, the deadline is January 31st for paper filings and March 31st for electronic submissions.
- Consequences of Non-compliance: Not issuing a 1099-NEC or submitting it late can lead to penalties from the IRS, emphasizing the importance of timely and accurate filing.
Above all, the most important thing is to keep records of these transactions. It will help you stay compliant with the IRS guidelines.
Managing 1099-NEC Income on Tax Returns
- Incorporate All Received Income: Summarize the total income from your 1099-NEC forms and report it on your tax return, typically on Schedule C for individual business owners.
- Subtract Permissible Business Expenses: You can deduct expenses related to earning your reported income, which can lower your overall taxable income. Keeping detailed records of these expenses is crucial.
- Calculate Self-Employment Taxes: As most real estate professionals are self-employed, you must pay self-employment taxes for Social Security and Medicare, calculated using Schedule SE.
- Fulfill Tax Obligations: Ensure you file your tax return and settle any due taxes by the deadline to avoid penalties and interest accruals.
Why Consult Professionals?
While dealing with 1099-NEC forms in real estate, consulting professionals can be extremely beneficial. These professionals, like the ones we have at CROWNGLOBE, have expertise. They always stay updated with the latest taxation changes and laws. So they are well-equipped to assist with your compliance.
They ensure accuracy, compliance, and optimization of tax liabilities for you. Result? You don’t have to take the headache of meticulous record keeping and compliance. You can steer clear of penalties and IRS inquiries.
They can also guide you on tax reporting, maximizing tax deductions, and safeguarding your financials. So you get peace of mind in the tax season and can focus on your core business.
Make the Right Choice
For real estate professionals, adhering to tax reporting rules is essential. Both real estate experts and their clients or payers must recognize these updates and ensure income is reported on the appropriate form. We hope this guide has offered you much-needed information on form 1099-NSE and how it differs from form 1099-MISC.
If you do not stay compliant or make some errors, you can attract unwanted attention from the IRS, leading to tax complications.
So, keeping precise records, following IRS guidelines, and consulting with tax advisors is critical. For any more information on the topic, feel free to reach out. Our experts are here to help.
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