1099 Reporting Burden Will Increase in 2011
By Scott Meyers
Published 19th November 2010
The Health Care bill passed by the federal government this year has some startling repercussions for all small business, and particularly for us in the storage industry.
For the most part, the storage industry has been free of burdensome laws and bureaucracy. But President Obama’s Health Care Bill requires that businesses involved in health care file a 1099 with the IRS for any purchased goods valued at more than $600. Mirroring that law is the introduction of legislation by Rep. Barney Frank called the Small Business Jobs and Credit Act of 2010 (H.R. 5297). On the surface, the goal of the act is to make credit more available for small businesses as well as offer tax incentives for small businesses while creating jobs.
The impetus behind the act sounds appealing, but it is suspect whether the burden on businesses that rely on rental income was thought of when the bill was formed. This act includes extending a Form 1099 requirement to any business receiving rental income from a rental property business to pay a sales tax under certain conditions. The government is clearly trying to raise revenues to offset losses from credits to other businesses in the new act. Thinking by the politicians runs along the lines of more reported payments results in more taxes to collect.
This act could have several negative impacts on a self storage business, some which could be quite burdensome. A 1099 form would be required from any self storage business paying in excess of $600 a year that isn’t in the form of wages and salaries. Also, if the business spends more than $600 a year on anything, such as gate repair or software upgrades that can be deducted as a business expense and a 1099 form from the purchaser or company must be received from the person selling the products or services.
The paperwork involved is mind boggling. And if that weren’t enough, the 1099 requirement makes it easier for the state tax commissioners to follow the money and check sales-tax collections and payments. The commissioners have interpreted 1099 as a way of getting more sales tax. Under their watchful eye, if a sales-taxable purchase is made and the receipt doesn’t show that sales tax was charged and collected, than the self storage facility owner is responsible to pay the tax.
So if someone is hired to repair some asphalt and the bill comes out to be $600 or more, that is considered a state, sales-taxable event. A 1099 must be received from the asphalt company that was paid in excess of $600 per year. Invoices the asphalt company provides must show a sales tax was charged to the self storage company.
Scott’s Next Quick Tip: About Portable Storage Units
By Scott Meyers
Published 8th November 2010
http://www.selfstoragemillionaires.com/videos/QuickTip10-31.flv
A Testimonial From One of Our Students
By Scott Meyers
Published 3rd November 2010
July 30, 2010
Dear Scott,
We purchased your home study course and attended the self storage boot camp in Las Vegas in January of this year. We came away from your boot camp ready to buy our first facility. We have been in apartments for 10 years and although they have been good to us, we were ready to change from “tenants & trash” to something that wasn’t so labor or tenant intensive.
We looked on the Internet at facilities that were for sale around Indiana the next few months and visited several. We made an offer on April 1st on a 122 unit complex in northern Indiana. After a few days of negotiations (using your forms) we signed a purchase agreement and later closed on June 18th.
The Facility is less than 4 years old and is in excellent condition with 5+ acres so there is room for expansion! The economic occupancy was about 60% with a physical occupancy of 68%. The great thing is that the property pays all its expenses and payments at that occupancy rate, so as we rent the property up.. profits will go through the roof.
Thanks so much for imparting all the knowledge we needed to get us a great start. We are looking forward to adding several more facilities to our portfolio as we continue to “wean”ourselves out of the apartment business.
Here’s our next deal:
Located at 9665 W US Hwy 20, Angola, IN.
67 Self-storage units & a 5-unit strip mall. Needs a little clean-up work, nothing major.
Owner was in trouble. We closed the day before the bank foreclosure. Previous bank took a big hit. We have been negotiating with the owner & the bank for about 3 months. They held a public auction & we were the high bidder, but they didn’t accept our bid then. Final purchase price was 54% of the 2 year old appraisal. Phase I study came back fine. Current owner did a horrible job with management & didn’t pay sewage bills or R.E. taxes for 2 years. Occupancy was down to 25% (was over 90% 4 years ago). We already have a part time manager in place & will start to tidy the place up & start on marketing in the next few weeks. Goal is to be at 75% economic occupancy in 12 months.
Best wishes for your continued success!
Greg Michael and Ken Lavy
M&L Storage, LLC
Indiana
Get original Self Storage Investing content sent straight to your email inbox for free,
and we promise never to share, trade, sell, deliver, reveal, publicize, or market your email address in any way, shape, or form.