First and foremost, I am a newbie to RE investing so I’m asking for your patients with my questions because I’m sure that similar questions have been answered numerous times prior.
My Partner and I are about to form an LLC to purchase our first rental property. We plan to handle all management and maintenance issues. There are repairs and improvements that need to be done with the assistance of independent contractors. The LLC will not have any employees. My question is how should we handle the payroll? Should we apply for a Federal Tax ID? Can we just 1099 all the contractors?
Payroll is for employees. Send a 1099 to every individual you pay in excess of $600.
As to the LLC, be aware you have no limited liability for your actions. You are personally responsible for everything you do that creates a liability. The LLC only protects you from the actions of your partner depending on your state’s law.
So should we apply for a federal tax ID for the contractors that we do issue a 1099? I have another question about independent contractors. This is just an example, but would the IRS consider someone like a lawn service an independent contractor?
If anyone knows of any good resources about the above topics please let me know.
Thanks BLL for taking the to time share your wisdom with me.
A federal tax ID is like your business’ Social Security number. Expect places to ask for it when you apply for financing and things of that nature. It’s not that much more of an expense than just filing the Articles of Organization for the LLC so IMO you may as well just do that too at the time. The tax ID is for your business. It’s not for the contractors you 1099. Your plumber, electrician, handyman, lawn care guy, etc. can all be considered independent contractors. They’re not regular employees of yours. They just contract work when you call and need something done. Plenty has been written about LLCs here. Just start reading all the old posts in this forum.
You will need an EIN because the LLC will be treated as a partnership.
An independent contractor is someone whom you pay for work who is not your employee. The IRS has guidelines that define an employee vs. an independent contractor. It has to do with how much control you have other the way they work.