Q: I rent a home with a property manager to select tenants, handle repair calls, and collect rents. I paid the manager $ 1,332 plus gross income tax last year. I previously paid the same manager in 2019 and 2018. I never reported this payment on a Form 1099-MISC, and I was recently told to do so. As I am late for 2020 and missed the two previous years, I want to be sure that this is necessary.
A: That is a surprisingly challenging question. The answer may depend on how you report other items on your tax return. The basic requirement is simple: you need to report payments of $ 600 or more made in the context of a trade or deal.
Payments to companies such as corporations or LLCs do not need to be reported. The way in which the property manager works can then affect the registration requirement.
If the property manager is paid as an individual, the registration requirement is activated regardless of whether you are in a trade or a company. If so, you are required to register. If not, you do not need to submit Form 1099-MISC.
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The tax definition of a trade or business is not clear. There is a difference between an “investment” and a “business”. The line between the two is often blurred, but the distinction is generally based on activity level.
A business usually involves more activity than an investment. The IRS has generally treated a single rental property as an investment. Recent changes in tax law make the investment status favorable to the IRS.
For example, the 2017 Tax Act added a new deduction of 20% for “qualified business income”. When a rental property is generating net income, this deduction is only available if the rental activity is a business rather than an investment.
Often taxpayers want to report rents as a business to justify this 20% deduction. IRS has warned that if business status is claimed, Form 1099 filing requirements may also apply.
Hence, you can avoid filing the 1099 when making payments to a company. Reaching out to an individual can also help avoid filing by reporting the rental activity as an investment. Once in this position, however, you need to be consistent on other tax reporting issues.
Q: I’ve read that some companies pay workers to get the COVID-19 vaccine. Do workers have to report this as income or has the IRS made an exception?
A: A cash payment would be taxable income. My understanding is that most of these employers that you are referring to give paid time off to get the vaccination. Paid time off is also taxable, but a little different than giving someone a check for the vaccine.
I suppose there are ways an employer can give tax benefits to vaccinations. For example, if an employer provides a restaurant with a US $ 25 gift certificate, which, according to the definition of a “de minimis” margin, should qualify as a tax-free margin.
Q: I did not want a 2020 Minimum Distribution (RMD) from my IRA and the custodian assured me that I would not receive one. Even so, they made me an RMD in December 2020. I’m trying to get them to fix this. Do you know how i can make her do this?
A: There are procedures in place to resolve certain common IRA errors, including excessive posts and failed RMDs. I don’t know of any procedural rules to fix an unwanted distribution.
I think the easiest way would be for you to return the money within 60 days. This “rollover” would enable you to avoid the 2020 distribution tax.
There is a limit of one 60-day rollover per 12-month period. If you use this approach, you won’t be able to do another rollover for 12 months. If this is not a problem for you, I recommend doing the rollover. They do not require approval or action from the custodian.
You will be notified of the distribution for 2020, but you will be able to display zero as the tax amount due to the rollover.
James R. Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.