Why does the 1099 not match with total from the Owner Statement reports?
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Why does the 1099 total not match the total income listed on the end of year Owner Statement?
Our management software generates 1099s based on net change in all Income accounts not exempt from 1099 Reporting + Net Change in Prepaid Rent. These amounts will not necessarily match and the Owner Statement is not a recommended year-end report to compare with the 1099. The Owner Statement shows cash in and cash out of the key operating cash account, is affected by suppression and GL accounts that may be marked as exempt from 1099 reporting. Per 2013 regulations, the IRS considers all prepaid rent as taxable income on a 1099. For example, any prepayment amount received at the end of December that remains in prepaid rent until January 2018 is considered taxable income on the 2017 1099 for the respective owner.
NOTE: If prepaid rent is reported on your 1099 for a prior year, it will show up as a negative prepaid rent balance on your cash flow rent for the most recent year. This is to ensure that you are not taxed in two consecutive years for the same prepaid rent amount. EXAMPLE: If prepaid rent is reported on your 1099 for the tax year 2021, the same prepaid rent balance will show up as a negative prepaid rent balance on the 2022 cash flow statement and will NOT be reported as income for your 1099 for tax year 2022.
Here are two links to the IRS website regarding their updated regulations on prepaid rent and 1099s:
1) http://www.irs.gov/publications/p527/ch01.html#en_US_2014_publink1000218965
2) http://www.irs.gov/publications/p538/ar02.html#en_US_201212_publink1000270642
We do not suggest using the Owner Statement to identify the amount of income received in a year. The owner statement titles the columns 'Income' and 'Expense', when really it should be referred to as 'Cash In' and 'Cash Out'. For example, if a vendor reimburses an overpaid expense then this would be recorded as a receipt coded to an expense type account (such as 'Repairs'). This would show in the 'Income' column on the owner statement, however this is not income to the owner because it was not coded to an income type account. Only transactions coded to an income type account that are subject to 1099 reporting will impact the owner's 1099 balance.
To verify the 1099 calculation we will need to add the Prepaid Rent GL account to the Cash Flow report. To do this we can update our Accounting > GL Accounts > (Prepaid Rent) > check box to "Include on Cash Flow" and then run a Cash Flow report filtered by the owner (vs. a single property) and for the entire year. Total income plus Prepaid Rent will match the 1099 amount reported on the Owner 1099 summary.
How is an owner's 1099 total calculated?
Owner 1099s generated from our management software report total gross income in the tax year per owner. By default, this equals the net change in all income GL accounts and other income GL accounts subject to 1099 reporting, plus the net change in the prepaid rent account.
Owner 1099 Total Calculation
Owner 1099s generated from our management software report total gross income in the tax year per owner (not per property).
An owner's 1099 total = net change in income and other income GL accounts in the tax year + net change in prepaid rent in the tax year.
Why do we include prepaid rent? The IRS considers advance rent taxable income, even if the owner does not receive the prepaid funds until January.