Managing Your Money

Tax compliance reporting expanded for landlords

While much talk has come out of Congress in recent months about the need to support small businesses, their actions do not always match the rhetoric. The Small Business Jobs Act, which was passed less than two months ago, creates a new IRS reporting requirement for small landlords. Starting in 2011 (just over a month away), individuals that receive rental income (landlords) will be required to issue Forms 1099 to service providers for whom they pay $600 or more during the year. Copies of the 1099’s are to be submitted to the IRS.

For payments made in 2012, the law expands further. The 1099 reporting requirement will not just cover the purchase of services, it will also cover the purchases of goods and property. This second expansion of 1099 reporting is the result of the Patient Protection and Affordable Care Act, a.k.a. Obamacare.

Landlords of one, two and three unit dwellings will be those most impacted by this legislation. These folks are the smallest business owners in the country and also one of the most numerous.

As a rule of thumb, it will take property owners about 30 minutes to gather the necessary information and prepare each 1099. Most will have to prepare between 10 and 40 1099’s in 2011. In 2012, the number of 1099’s to be sent will likely double due to the expansion of property as a reportable transaction. Each landlord can expect to incur between 10 and 40 hours of 1099 compliance paperwork in 2012. At $40 per hour, this will cost each property owner between $400 and $1,600 per annum.

Sending 1099’s will force a significant cost of tax compliance away from the Internal Revenue Service and on to property owners / small businesses. This is not to say that compliance does not need to be incurred, it just does not seem that business owners should incur the cost of an overly complex tax code.

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