Tax returns and private money lenders
It’s tax time … Have you borrowed money? Have slow private money? When lending and borrowing, do you mail and / or receive forms 1098 or 1099? Do you know how to use them?
At a recent Triad Mastermind meeting, there were questions about who gets 1099 income and 1098 returns. We asked our CPA and here is some of what was shared:
You must provide 1099 INT to whoever pays the interest. Whether a 1099 is sent or received, the person or entity receiving the interest is responsible for reporting the interest income. You have proof that you are paying interest even if the recipient does not send you a payment confirmation. If the recipient does not report it, the recipient would face fines and penalties for undeclared income. There is a $ 50 fine for forms not filed.
The 1098 is filed by the recipient of the mortgage interest. You should send 1098 forms to any owner-financed property for which you have received interest. If the private money is tied like a mortgage on a specific property, then the interest recipient must send it to 1098. There are penalties if the IRS searches and discovers that 1098 forms were not filed.
By the way, the IRS has made the decision to target real estate professionals for audits. Why has the IRS turned to real estate professionals right now? According to his own report of December 20, 2010:
Actions are necessary in the identification, selection and inspection of individual tax returns with rental real estate activity.
In August 2008, the Government Accountability Office stated that “at least 53 percent of individual taxpayers with real estate rental activity for fiscal year 2001 incorrectly reported their real estate rental activity, resulting in a estimated $ 12.4 billion of misreported net income. “
As always, consult with your CPA on all tax questions and speak with your closing attorney so that these issues can be handled properly from the beginning of all transactions.
What does your CPA say?
** UPDATE ** You should be aware that there are penalties for not submitting a required 1099 (Misc, Div, Int, etc.). The good news is that the fine is based on late filing. If you are only 30 days late, the penalty is only $ 15 for return information. It increases to $ 30 if you apply before August 1 and increases to $ 50 if you apply after that date. So if you’re late, procrastination will only make it worse.
You may be able to avoid penalties entirely if you can show that the failure was due to reasonable cause. But that is not as easy to do as it sounds. Failure to file a W-2 results in a $ 50 fine for W-2. Failure to submit the W-3 summary for W-2s starts at $ 15.