Hi,
My husband and I have teamed up with some friends to create an LLC for a flip. We will be filing as an S corp. My husband will be doing most of the rehabbing on his own, he may have some friends (counter top guys, roofers, etc) do stuff he needs help with. Is it better to give himself and other workers 1099 forms and deduct the work or not deduct it? If we have to give a 1099 to friends they will probably want to charge a higher rate if they have to claim it on their taxes.
Hi,
This is a really good question as we generally don't 1099 companies or individuals on our flip properties. Keep in mind your homeowners policy will probable pay for an accident but will then drop you like a hot rock!
If you operate as an LLC you can get a workers comp / liability policy and in the event of an accident write that person into your books and records in order to be covered, but you also have to have some knowledge of those working with you that there not going to jam you if something happens!
But most of these guys if there a licensed contractor already and just willing to help you out as a cash under the table deal will cover accidents involving their guys through their own insurance policy.
If you 1099 someone they then have to get enough to cover taxes which could be 26% to 55% state and federal and then each of these companies (People) have to get enough from you to cover their burden.
Burden is the cost of being in business which includes Liability Insurance, Workers Comp, Employer contributions like Un-employment and SSI. Burden could include costs of equipment and equipment insurance, office personal and payroll / credit line costs. These are calculated on a pro rata basis by the hour or day!
GR
you can’t 1099 yourself unless you actually get paid.
you are required to 1099 everyone who gets paid >$600 and is not a corporation.
what you pay for the work is deductible irrespective of whether or not you 1099, and you should always deduct your expenses or you are the one paying the tax (instead of the guys who got paid for the work) because your net income will be higher. Thank you Mr. Rehabber for paying my taxes for me.
sending the 1099’s is a completely separate process, and a separate penalty for not filing the 1099’s as required.