How Real Estate Investors Can Avoid $630 Penalties
For real estate investors and construction contractors, properly handling 1099 filings is a critical component of their financial responsibilities. The e-filing deadline is January 31st of each year; compliance is essential to avoid costly penalties. A streamlined 1099 preparation and W-9 collection workflow can save businesses from unnecessary stress and financial consequences.
It is important to note that any of these guidelines and penalty amounts are subject to change at any time by the IRS. It is important to have a connection with a good bookkeeper, CPA and tax professional to ensure you remain up to date on regulations.
When Do Business Owners Need To File 1099s?
Business owners need to keep cumulative track of payments made to each vendor throughout the fiscal year to determine 1099 reporting requirements. The following payment methods must be tracked for 1099 reporting:
Cash
Check
ACH (Automated Clearing House) Transfers
Online Bill Pay
Zelle
Bank Transfers
Wire Transfers
However, payments made using third-party payment processors do not need to be tracked for Business Owner 1099 reporting because these processors follow their own regulations and issue a 1099-K when required. These methods include:
Debit Card
Credit Card
Venmo Business
PayPal Business
CashApp
It is important to note that corporations are exempt from 1099 reporting, however, this does not apply to attorneys, health care and medical care.
Understanding which payment methods require tracking can help business owners stay compliant and avoid unnecessary reporting errors.
Understanding the 1099-NEC vs. 1099-MISC
One of the biggest challenges in filing 1099s is knowing which form to use. The two most commonly used forms are the 1099-NEC and 1099-MISC, each serving a distinct purpose:
1099-NEC (Nonemployee Compensation): This form is used to report payments of $600 or more made to independent contractors, subcontractors, or other service providers. Businesses in the construction and real estate industries frequently hire electricians, plumbers, and other trade professionals who must receive a 1099-NEC if they are not employees. Attorneys' fees of $600 or more paid in the course of your trade or business are also reportable here, regardless if the attorney is a corporation or not.
1099-MISC (Miscellaneous Income): This form is used for reporting various types of payments, such as rent, legal settlements, or other non-employee compensation that does not fall under the 1099-NEC category. Gross proceeds paid to an attorney, regardless if the attorney is a corporation or not. Real estate investors often issue 1099-MISC forms for rent paid to landlords or property managers.
Using the incorrect form can lead to IRS inquiries, penalties, and potential audits, making it crucial to categorize payments correctly.
Top Applications To File 1099s
To simplify the 1099 filing process, leveraging the right applications can make a significant difference. Two of the top platforms for filing 1099s efficiently are:
Avalara's Track1099 – A robust solution designed to automate the 1099 filing process, offering e-filing options, secure document storage, and bulk processing capabilities. It streamlines the submission process and reduces the risk of errors.
QuickBooks Online – This accounting software includes built-in 1099 tracking and filing features, making it an excellent choice for businesses already using QuickBooks for bookkeeping. It integrates seamlessly with vendor records to simplify year-end tax reporting.
The Cost of Misfiling or Failing to File 1099s
Failing to file 1099s correctly or on time can result in significant penalties from the IRS. The penalties are based on how late the form is filed and whether the failure to file was intentional:
Filed within 30 days after the deadline: $60 per form
Filed after 30 days but before August 1: $120 per form
Filed on or after August 1 or not filed at all: $310 per form
Intentional disregard for filing requirements: A minimum of $630 per form with no maximum cap
For businesses that work with multiple vendors, such as general contractors, these penalties can add up quickly. Ensuring timely and accurate 1099 filing can prevent unnecessary financial strain.
The Importance of a Streamlined 1099 Preparation and W-9 Collection Workflow
One of the biggest hurdles in 1099 compliance is tracking vendor payments throughout the year. Many construction and real estate businesses work with numerous subcontractors, suppliers, and service providers, making it easy to lose track of who requires a 1099.
A well-structured workflow includes:
Collecting W-9 Forms at Onboarding – Before making any payments to vendors or contractors, always request a completed Form W-9. This ensures you have the correct Taxpayer Identification Number (TIN) and classification from the start.
Backup Withholding – Set up a method to withhold payments where 1099 information is missing (or a missing and incomplete W-9 Form); 24% is the requirement by IRS with specific tax forms, such as Form 945, are completed in a timely manner.
Tracking Payments Accurately – Utilize bookkeeping solutions like QuickBooks Online and Knowify to categorize payments properly and monitor which vendors reach the $600 threshold.
Reviewing and Verifying Vendor Information – Before preparing 1099s, double-check vendor details for accuracy to avoid errors that can lead to IRS penalties.
Filing 1099s on Time – E-filing is the most efficient method, ensuring timely submission and reducing the risk of misplaced forms or mailing delays.
How Bookkeeping Solutions Can Help
Handling 1099 preparation can be overwhelming, especially for construction contractors and real estate investors juggling multiple vendor payments. Working with a bookkeeping professional ensures that your business remains compliant with IRS requirements, reducing the risk of costly errors. By integrating client bookkeeping solutions with efficient tracking and reporting systems, businesses can seamlessly manage vendor payments and stay ahead of tax deadlines.
Final Thoughts
The January 31st e-filing deadline is fast approaching, and ensuring compliance with 1099 filing requirements is crucial for avoiding IRS penalties. Real estate investors and construction contractors must take proactive steps to implement a streamlined 1099 preparation and W-9 collection process to keep their businesses running smoothly.
We can help you with this at Check Bookkeeping. We understand the importance of 1099s to real estate investors and construction company business owners, and we proven processes that work to make your life easier. Schedule a discovery call today: https://checkbookkeeping.com/scheduling
Don’t wait until the last minute—stay organized, file on time, and protect your business from unnecessary penalties.
Download a free 1099 cheat sheet we created: https://www.checkbookkeeping.com/1099cheatsheet
