Business rent payments to your landlord are reported on IRS Form 1099-MISC, which is due January 31. For the 1099-MISC, do you simply look at your checkbook or payment ledgers to identify the amounts you are going to report? If so, you will create an incorrect 1099 for your landlord that’s going to cause your landlord a tax problem.
One golden rule when it comes to your landlord is “do not cause your landlord tax trouble.”
Let’s say you wrote a $55,000 check to your landlord on December 31 and mailed it that day. Your landlord received the check on January 3. Here’s how your Form 1099-MISC can create a tax problem for your landlord:
• Your Form 1099-MISC to the landlord shows rent paid of $105,000 ($50,000 paid during the year and then the $55,000 prepayment on December 31).
• The landlord’s 2018 federal income tax return shows $50,000 in rent received (he received the $55,000 in 2019).
• IRS computers note the difference and start an inquiry.
An incorrect 1099 that overstates the landlord’s income is a problem that can lead to a tax audit.
The landlord did not have control of the money until he or she had possession of the check in 2019. Surprisingly, the 1099 could contain a taxable amount to the payee that is different from the deduction amount of the payor.
In conclusion, in this case, the correct 1099-MISC amount is $50,000. That’s the amount you should put on the 1099-MISC you send to the landlord for 2018 even though you are going to deduct $105,000 as a cash-basis taxpayer.
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX generally do not understand the tax laws and may find themselves in trouble with the IRS.