Thank you, John. It seems a bit unusual to be paying the contractors tax-free income but I don’t see how to issue them 1099’s without me being guilty of self dealing. I guess it will be up to the “honor” of contractors to declare this income (if that word even exists in a contractor’s vocabulary).
Hi. I use Equity Trust as the custodian for my IRA and have paid contractors from the IRA for work done on some properties purchased with these IRA’s. When I pay contractor’s with my own funds, I issue them a 1099-MISC miscellaneous income form for total amounts paid of $600 or more to each contractor at the end of the year. I just got off the phone with Equity Trust and they do not issue these 1099-MISC statements to contractors paid with IRA funds. How does this get reported to the IRS? Do I have to issue these 1099’s myself or is this considered self dealing and a violation of IRS code? Or does no 1099 get issued at all in which case the contractors are getting tax-free income (which seems to be illegal)? TIA.
Self dealing going on here? - Posted by John Merchant
Posted by John Merchant on January 28, 2008 at 09:45:13:
As I re-read your original post, it sounds like you could be doing some illegal self-dealing by putting in ANY of YOUR non-IRA funds (unless your RE is titled to both your SDIRA AND you, in a partnership, which would be legal) so I’d counsel no more inserting your own personal, non-SDIRA funds as at is currently structured
Now if you need some more funds for the RE, you might go to some 3d party who also has a SDIRA and figure something out where you’re buying into his property…and he’s trading off by buying into yours, so as to get add’l funds into your SDIRA…all legally.
While I have no idea where you are, or your properties are sited, I do know a number of SDIRA specialist lawyers who could help you structure such a legal arrangement.
Since SDIRA law is federal and nationwide, one of these SDIRA- wise lawyers located anywhere could provide you the assistance you need.
Bob, I think you are right. This income, to the contractors, must be reported. Deals in your IRA are not the custodian’s deals. They are your IRA’s deals. A signature is not required on a 1099 misc. When I send contractors 1099 misc, I use the custodian’s TIN as the payor. The 1096 does require a sigature and I sign it as the person submitting the 1096.
SDIRA using LLC to rehab, pay contractors - Posted by John Merchant
Posted by John Merchant on January 16, 2008 at 14:41:01:
If your SDIRA starts and owns its own LLC, then the LLC buys the RE, that LLC can pay for whatever it needs to and pass along whatever tax benefits as may exist.
However, since the LLC is only a tax pass-through, and would be passing the taxex due and any deductions along to its owners, and the owner is in this case a NON tax payer, there’d be NO taxes due and no deductions either.
The LLC would issue 1099s to each contractor doing work on that property and that tax payor contractor would attach his 1099s to his own tax return.
Having the SDIRA open and use an LLC for buying, rehabbing, working on a RE property is much simpler than the alternative of having the SDIRA custodian issue checks for work done, etc.
Thank you for your reply, John. I did not use a LLC but titled the property in my IRA’s name. Does this mean that my IRA has to issue 1099’s? Equity Trust refuses to do this for my IRA and I don’t think I can do it or I will be guilty of self dealing.