I’ll be taking over a small park that has a onsite maintenance man that resides in one of the trailers.
I plan to keep him because I live 5 hours away and I like the idea of having someone there to watch over things.
Currently he does not document anything its basically an “I say” " you do" situation.
My questions are:
Should I have him sign a lease agreement like all other tenants and then credit him for the work performed each month? Then treat him as a subcontractor so I can write of this as an expense?
What is the best way of keeping track of hours as well as proof of work done ( ie. pictures/ videos)
would an app be best for this?
Technically any rent break or payment should treat him as either 1) an employee (you pay taxes, workers comp, unemployment, etc) or 2) an independent contractor (he does this as a “business” and carries his own insurance, pays his own taxes). In reality we often see a gray area with a rent credit given to the on-site manager (especially in smaller parks)
Yeah, I’m getting the feeling of this gray area. I spent a couple days up there and talked to the guy quite a bit through out that time. He may be collecting from the state and this was all done on the low.
If that’s the case I’ll have to figure out what is best for both our situations but I know it can’t stay the way it is…
“Planning to keep the onsite maintenance man for a small park I’m taking over. Should I have him sign a lease like other tenants and credit him monthly, treating him as a subcontractor for tax purposes? Also, what’s the best way to track hours and proof of work—would an app be ideal for this? Looking for advice!”
He gets a lease like every other tenant. If he lives there for free to ‘watch over things’ and take care of the ‘I see/you do’ situations then you issue him a 1099 and his free rent is considered income to him as a subcontractor. Then he has to report the income on his personal taxes… as the IRS will match up the information. You get to expense his free rent. As a subcontractor he sets his own hours, provides his own tools and accomplishes your task requests as he deems best in his professional opinion. If he gets hurt you are not liable. If you start telling him what to do, when to do it and for how long he should do it every day… he’s then crossing over into the ‘employee’ definition by the IRS and then OSHA.
Now if he is ‘collecting’ from the State he may throw a fit with a 1099… but I would recommend it as deal or no deal situation. It ensures to IRS, OSHA and W/C he is NOT an employee but a sub contractor. Protect yourself.
@StevenM
I am not an accountant but my wife is and she has a lot of MHPs and rental properties as clients and I am certainly paraphrasing her lectures to me. Another thing she has always reminded me is your odds of dealing with an IRS audit are similar to getting swept away by a tsunami in Nebraska. Your real threat of frustration would likely come from your maintenance guy getting hurt and causing trouble. Another thing I am dealing with in a park I acquired is an on site maintenance person with free space rent… and having to change that arrangement. Been there a long time and his health is catching up to him and not ‘on top of things’ as he has in the past.
I have an exact similar situation. The guy has been doing it for 12 years, they just dont charge him lot rent. I am not continuing that. I want to have a lease with lot rent. For one, it makes the overall park numbers look better with 1 more rented lot. Also, If I need to not make him manager anymore then he is all set and ready to just continue living there and paying rent. The debate for me is how to pay him. I have a payroll system for myself. I could maybe add him to that. But employee vs. contractor. I think Frank says don’t do contractor, make employee. I would only pay him maybe $300/month. Lot rent is $210 so he would be getting a raise. Not sure on taxes. He probably does not make enough to pay taxes. Not sure if payroll with withhold anyway.
Two things I would definitely recommend:
1). having a lease. That way eviction may be smoother. (however you credit him, is up to you, but get a signed lease!)
Insurance. Speaking of work comp insurance. Be sure you are covered. Someone else mentioned this as a risk presence - and it is. I speak from first-hand experience. Litigation with a contractor due to injury is no fun.