Contractor Deduction / Reimbursement

Forum|Forum|1 year ago
August 22, 2024
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I have a contractor to whom I will need to 1099 at year's end. A few third parties have contributed to help absorb the cost. On my schedule E do I:

A) Claim their contributions on income line 3 and then 1099 the full amount that I paid the contractor?

B) Only claim and 1099 the contractor the net out-of-pocket amount?

C) Some other solution?

TurboTax Home & Biz Windows

Opus 17

Employee

You must report the full amount you pay to the contractor on a 1099-NEC.

Are you saying that other people are paying the contractor on your behalf? Or are you saying other people have given you money to help pay the contractor?

Since this is a schedule E, I will assume this is repairs to a rental property for sake of argument. If other people paid the contractor, then you issue the 1099 for what you actually paid, and only the amount you paid is a deductible rental expense. For example, if the repairs cost $1000 but you only paid $800, then you issue the 1099 for $800 and your expense is $800, not $1000.

If other people paid you, and you paid the contractor the entire amount, then you issue the 1099 for whatever you paid and whatever you paid is the rental expense. But, we then have to ask, were the third party payments to you reportable as income on schedule E, or were they non-taxable gifts. I think that depends on the business relationship, if any. Suppose the property is a historic landmark that was damaged in a storm. If you get a grant from the city or a historic preservation organization to help with repairs, that is taxable to you because you had a business relationship with the payor. Likewise if your tenants helped pay, because of the business relationship. But if you set up a gofundme to help repair the historic property, and the donations were freely given by strangers who had no interest in the property, then those might be non-taxable gifts.

mgc6288Author

We have hired a lawyer in a lawsuit where we all have interests but the lawyer wants one client to handle the money. So everyone has paid me and I'm paying the lawyer on behalf of all of us.

I understand that only my portion is an expense. Lets say the Lawyer is $2000 and some other fellows paid me $1500 where I am to write a check on behalf of my LLC for $2000. I understand that I can only deduct $500.

My question is, since Schedule E line 10 will have $2000, will the IRS be scratching their heads when I only 1099 for the $500, or since my portion is under $600 then I do not need to? Are they expecting me to 1099 for the $2000 claimed?

OR, since this money was deposited into my LLC bank account, do I need to claim this money as "income" and then 1099 the lawyer for the entire $2000 deduction?

I understand the end result is the same - $500 deduction - but what is the most proper way to claim it?

@Opus 17