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Can I 1099 a Contractor? - YouTube
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can you 1099 a contractor yes you can
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and guess what you are supposed to we're
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gonna tell you how that's today's
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episode let's dive into it hey everyone
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I'm Natali Morris and I'm Clayton Morris
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sorry for that pause there the dramatic
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pause we are longtime real estate
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investors we buy properties and hold
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them for the rest of our lives that's
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the goal so that we can build financial
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freedom passive income and cash flow and
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that's the whole purpose of this channel
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is to help you build financial
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intelligence and guess what it's tax
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time yes it is sadly that's the case
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it's always a time of pain in my house
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but yeah that's the purpose of this
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channel not only do we tell you how to
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acquire real estate but we want to talk
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to you about how to be good business
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owners inside your house so when you
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become a real estate investor now you
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own a business right when you own a
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business you got a due tax time and you
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might as well do it well I guess what
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all these 1099s are gonna start flowing
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to you yeah because look one thing I
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want to say on this channel from now on
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is that you are not in the easy you're
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not in the easy form IRS film you can
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turbo tax anymore
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no you are real estate investor you are
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now putting on your big-boy pants your
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big girl pants okay and so 1099s are
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gonna be part of this game and if you
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google can you 1099 a contractor you're
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gonna find people that don't know what
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they're talking about right so we want
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to talk to you about issuing 1099 s when
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1099 s come to you that's a different
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thing but now that you own a business
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you will be paying people to do services
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as contractors right so let's say
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Clayton he looks so much like a handyman
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today so let's pretend he's my plumber
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can I fix your pipes that's that's good
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funny joke okay
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so Clayton the plumber uh-huh has agreed
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to do a job on my real estate investment
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for over six hundred dollars if I take
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him less than six hundred dollars I
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don't really have to 1099 him that's the
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threshold where the government says we
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want to know about it right
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under that you don't have to still a
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good practice to do it and I'll talk
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about why later
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but Clayton's gonna say okay this pipe
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job mm-hmm right Vic Koss right it cost
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this is gonna cost $900 $900 is the cost
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and I say great price Clayton's plumbing
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I agree
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Clayton does the plumbing I send him a
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check out of my LLC bank account or with
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my LLC credit card I make the payment
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right and he gets paid $900 now at the
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end of the year I want to tell the
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government
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I paid Clayton's plumbing let's say he
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did a few jobs that ended up to save
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$5,000 right she really liked my
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plumbing work I like she kept calling me
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to come back and so now I need to tell
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the government that I paid him $5,000
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right right so this is a notice to the
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government that who's gonna pay taxes on
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that $5,000 who I'm just the plumber
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don't look at me you are going to pay
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taxes on that $5,000 and this is an
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idiot you know it's absolutely true and
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guess what a lot of people you know they
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want to be paid in cash or they want to
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do all sorts of different things no look
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you as a business owner your real estate
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investor you have this business credit
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card now you should be using that so you
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can get rewards points by the way we
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have a link up to one of our favorite
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rewards points credit cards below you've
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got to check it out so you get to travel
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the world for free as a real estate
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investor so you're not sending anyone
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cash okay you are going to be making
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these payments from your business and
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that needs to be tracked the IRS wants
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to track that now remember the formula
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if you are a corporation or a business
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of any kind right and you make $100 but
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you spend $50 in expenses you're only
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taxed on $50
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the remaining profit right as an
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individual if I make $100 and I spend
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$50 I'm still taxed at my tax rate at
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$100 right that's why we always tell you
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make sure you're some type of entity
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Corporation and LLC and ice Popp
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whatever you choose right so for that
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very reason alone I want
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the government to know maybe I made
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$10,000 but I paid $5,000 of it to
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Clayton's plumbing only tax me on $5,000
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tax Clayton's plumbing on the remaining
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$5,000 it always you know a lot of times
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when you add someone who I make this
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payment to and Clayton says Clayton
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Morris I'm always like okay but then
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your taxes are not quite so favorable
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right that it'll Sharpe what I care
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about is that I have given the
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government notice right but don't let
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your Clayton's plumbing because no I'm
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not gonna lecture Clayton's plumbing but
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I do
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he's not going to tangent I'm gonna go
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on a tangent back up everyone Clayton's
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going on a tangent okay okay we hire
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contractors all the time they like yeah
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I just make the check out to John Smith
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no come on John Smith set up an LLC you
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really don't realize how much money
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you're you're losing as a result of this
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all right okay so I don't care how I'm
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paying Clayton's plumbing that's Clayton
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plump Clayton's Plumbing's problem right
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what I care about is the government
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knows that that $5,000 might push
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through my entity and he's due taxes on
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it not me so that's another reason to
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make sure your 1099s are in order so now
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you know how that works you're going to
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tell the government and everyone you've
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paid more than $600 so that the
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government knows I won't be paying you
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taxes on that money I'm only gonna be
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paying you Texas on what's left over now
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as an individual obviously you pay taxes
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on that money to earn it already right
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so that money was taxed again this is
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just keeping everything aboveboard
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even as an individual you should be 1099
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in people that's just how it works so
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who else would you say you send time
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1099 to uh who well a roofer any other
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contractors who anybody who's doing
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contract work for you right you know a
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lot of times people will hire we work
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with a partner who they don't really
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have employees they have contractors
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that work for them right so they but
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they work kind of on a regular basis
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they work 40 hours a week for them they
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they've actually structured it in such a
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way to help them
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because then they own their own business
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yeah and they're there they're setting
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it up that way so it might not be an
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employee or you might have people doing
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contract work for you might be a design
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work it could be anything for your
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business you got to think about once you
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really start to wrack your brain and the
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best thing to do is to go through your
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expenses look at the amount of money
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that's gone out of your business and
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start to think about holy smokes that's
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it you know I need a 1099 that person
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right but I was in the TV world my agent
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you are a just to 1099 your agent
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Clayton's agent actually gave us the
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stink about it because I was like can
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you please get him to fill out this w9
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he had changed his firm and he was like
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people don't 1099 me and I was like well
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we're gonna and he really pushed back
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and I sent him the link to the IRS it
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says anyone you pay for a service needs
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to be 1099 so they the government would
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like it if you do everyone like I don't
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take it as far as like my hairdresser
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although I definitely don't spend
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without a lawyer a lawyer a lawyer you
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should write I mean you just if you're
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the kind of person that likes it all
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buttoned up nice and neat you should be
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doing this
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okay so how do you do it you want to
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talk about how know you can talk about
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how you do it okay you have to order
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1099s from the IRS and they come to you
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in the mail it's an old way to do it but
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they still send it to you you receive a
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stack of these things right and you need
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to send the government copies of the
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1099 s that you sent and what's called a
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1096 which is basically like a summary
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of all the 1099 s that you sent right
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now in order to fill out a 1099 properly
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you need to have the name of the person
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or the company that you paid their
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address mailing address the amount you
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paid them for the total of the year and
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either their social security number or
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their IIM number which is their employer
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ID number right how do you get that what
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the problem is is that at the end of the
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year a lot of times you'll say oh I
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better 1099 Clayton's plumbing but I
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don't have his employee ID number
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because I never asked for it so I might
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call Clayton's plumbing
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say hey can I please have your employer
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ID number because I need it for a 1099
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claim may not have wanted to report that
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income or he might not have wanted to
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report all of that income he might have
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some shady way that he wants to do his
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books and he might say I'm not returning
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that phone call because I don't want to
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tend them I just wanted to come fix her
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pipes and then that's a problem
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all right so if someone doesn't want to
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I don't want to pick up the phone I'm
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not calling her back right what what
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what do you do how do you 1099 someone
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that doesn't want to have anything to do
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with you well there's a couple of ways
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sometimes I get my bookkeeper on board
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and I say let's chase this person down
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you could report the 1099 with just the
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address and mail it to them and send it
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to the government that gives them the
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the onus of like finding out who that
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money needs to be reported from that's
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annoying but what to do to avoid this
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problem is just to get in the habit of
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always giving people w9 forms so let's
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say I called you up and I know that
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you're gonna be doing enough work for me
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that I will want to 1099 you you're a
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new contractor I say can you do this job
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you say yes and I say okay here's a w-9
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form a w-9 form is basically the request
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for all of this information and it puts
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Clayton's plumbing on notice that I am
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going to 1099 you at the end of the year
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I will be reporting this income to the
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government that way there's no like that
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wasn't you know sometimes a contract
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would be like oh I didn't know you were
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gonna 1099 me right now it's clear
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you've filled out a w-9 the only way
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you're gonna get that w99 is if it's an
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exchange right I will pay you for this
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I'm glad to do it
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give me the w9 it's gotta be before the
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job is paid not after otherwise you're
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gonna have to chase them down and to be
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honest sometimes it's embarrassing to
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ask like hey I'm gonna 1099 like I've
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done that with my babysitter's and I
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feel bad about it because we haven't had
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the conversation before right and I
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should have said something you know so
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it's good to just get in the crack
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of just exchanging money for w-9 yeah so
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bottom line you can you can 1099 a
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contractor and you should along with
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that 1099 that you submit to the IRS is
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that other form that summary page so
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that the government knows exactly what
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is going on so don't be a shady plumber
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and I also have one other tip for best
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practices now that you are a business
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other companies are going to be asking
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you for w9s as well your property
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manager needs one if you say get a house
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that's rented by HUD they will ask you
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for a w-9 and maybe you have some other
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income opportunities right so every time
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I establish a new entity like a new LLC
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and then you know I go through the
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motions of making sure I file with the
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state I get the tax ID number I go and
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fill out my own w9 form in anticipation
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that somebody's gonna ask me for it
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I feel like one that just makes it so
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that I don't have to keep filling those
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things out I always have one at the
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ready and - it kind of like tells the
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universe I'm always receptive to new
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avenues of revenue so ask me for a w-9
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that means I'm gonna make some money
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make sure you just keep those keep those
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in a Dropbox keep those somewhere so
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that they're at the ready yeah we have
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ones in our different folders able to
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send out on a moment's notice when
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someone asks a new partner wants to do
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something business boom here you go yeah
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so there you go can you 1099 a
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contractor yes you can and you should
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yeah and that's the best way for you to
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make sure that you're above board with
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the IRS check out our other tax saving
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videos here on the channel we've got a
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ton of them check out our episodes with
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Tom wheelwright our accountant and a
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great team at wealth ability if you need
[750]
a tax team holy smokes they are the best
[753]
they only work with our viewers of our
[755]
channel for a special program that we
[757]
set up wealth ability check them out we
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have a link below so you can call the
[761]
team from wealth ability they understand
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real estate investing better than any
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body else go ahead and do your taxes
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everyone and save a bunch of money we'll
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see you next time here on the channel
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