Paying Subcontractors?


C

C. Todd

Newsgroups: misc.taxes.moderated

Hello.. I have a question concerning paying independent
subcontractors.

First off some background.. I have a day job, and work doing
webcasts for business conferences on the side. I have a sole
proprietorship doing this; I recieve my income on a 1099-MISC
work-for-hire basis.

For a large job this winter, I have to hire a subcontractor
to work cameras and do some A/V processing. I've never done
this before.. I need to know, is there much else I need to do
tax-wise for this person than send a 1099-MISC to him and the
IRS, and include that as labor expenses on my schedule C?
This is what an accountant at work told me; but it seems too
easy. Is the 1099-MISC all I need?

This person is not an employee; this is a one-off event, and
he will process the tapes on his own time and schedule, at his
location, under his own direction. He will invoice me for the
total once done, and I will pay him. This is something he does
separately and independently on the side as well. Since he's an
independent contractor, do I still need an EIN?

Is there any limit to what I can deduct for payments to a
subcontractor? The entire deal is about $50k; I expect his work
to cost about $15k. I am expecting that this will be a deduction
from my gross profits just like travel expenses, lodging, equipment
rental and repair.. Is this true?

Also.. this person is a relative (cousin). Is that ever an issue??
(I don't see why it would be -- but who knows.)

Thanks in advance for any help.
 
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A

Arthur Kamlet

C. Todd said:
Hello.. I have a question concerning paying independent
subcontractors.

First off some background.. I have a day job, and work doing
webcasts for business conferences on the side. I have a sole
proprietorship doing this; I recieve my income on a 1099-MISC
work-for-hire basis.

For a large job this winter, I have to hire a subcontractor
to work cameras and do some A/V processing. I've never done
this before.. I need to know, is there much else I need to do
tax-wise for this person than send a 1099-MISC to him and the
IRS, and include that as labor expenses on my schedule C?
This is what an accountant at work told me; but it seems too
easy. Is the 1099-MISC all I need?
You would normally have him fill out a Form W-9 to let you
know his SSN, and you would transmit the original
red-colored 1099-Misc to the IRS using an original Form
1096.
This person is not an employee; this is a one-off event, and
he will process the tapes on his own time and schedule, at his
location, under his own direction. He will invoice me for the
total once done, and I will pay him. This is something he does
separately and independently on the side as well. Since he's an
independent contractor, do I still need an EIN?
Assuming a real contractor you do not need an EIN.
Is there any limit to what I can deduct for payments to a
subcontractor?
The expenses must have been actually paid during the year
for cash basis businesses, and the expenses must be
reasonable, customary and necessary for your business.
The entire deal is about $50k; I expect his work
to cost about $15k. I am expecting that this will be a deduction
from my gross profits just like travel expenses, lodging, equipment
rental and repair.. Is this true?
Yes -- usually a Sch C Line 27 item labeled Subcontract
work.
Also.. this person is a relative (cousin). Is that ever an issue??
(I don't see why it would be -- but who knows.)
Should be OK.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
A

Arthur L. Rubin

C. Todd said:
Hello.. I have a question concerning paying independent
subcontractors.
I'm sure they'll appreciate that...

OK, assuming that your cousin really IS an independent
contractor (which seems likely, but I'm not familiar
enough with the industry to be sure), you need a W-9
from him, certifying his SSN or EIN. If he's a
corporation (unlikely, I know), you don't need to file
a 1099-MISC. If he doesn't certify that he's exempt
from backup withholding, you need to do that. You
don't need an EIN (except possibly to file the
backup withholding -- I haven't checked). If he
does certify he's exempt from backup withholding,
your only requirement is to file the 1099-MISC.

There may be additional State requirements. For example,
in California, you'd need to report him as an independent
contractor on form DE-542 within 20(?) days of when you
either pay him over $600 or contract for over $600.

In other states, you may have to file the state copy of
the 1099-MISC with the state equivalent of the 1096.

The payment can be deducted on your schedule C. I
might put it under "professional services".

Being a relative might make the IRS contest the
"reasonableness" of the payment -- but you don't
have to specifically report that he IS a relative.
 
C

CLJ1219

I need to know, is there much else I need to do tax-wise for
this person than send a 1099-MISC to him and the IRS, and
include that as labor expenses on my schedule C?
That's about it.
Since he's an independent contractor, do I still need an EIN?
You can use your Social Security number.
Is there any limit to what I can deduct for payments to
a subcontractor?
No. Though it might not be wise to pay them more than you
receive. said:
I am expecting that this will be a deduction from my gross
profits just like travel expenses, lodging, equipment rental
and repair.. Is this true?
That is true.
Also.. this person is a relative (cousin). Is that ever an issue??
So, he or she is a relative. Matters not in the least. It
is HOW you treat them, how much control you have over what
they do, that matters.

Carol

If you awoke to find yourself a success, you weren't asleep.
Semper Gumby (Always Flexible)
 
H

Harlan Lunsford

C. Todd said:
First off some background.. I have a day job, and work doing
webcasts for business conferences on the side. I have a sole
proprietorship doing this; I recieve my income on a 1099-MISC
work-for-hire basis.

For a large job this winter, I have to hire a subcontractor
to work cameras and do some A/V processing. I've never done
this before.. I need to know, is there much else I need to do
tax-wise for this person than send a 1099-MISC to him and the
IRS, and include that as labor expenses on my schedule C?
This is what an accountant at work told me; but it seems too
easy. Is the 1099-MISC all I need?
Not quite. Did that accountant mention anything about
having your sub contractor fill out a W-9 form BEFORE your
paying him? That is necessary so that you can pay him the
full amount, without having to withhold a certain high
percentage (28%????). But if he has complied and furnished
you this W-9 form affirming that he is not subject to backup
witholding, then you may pay the 100%. And then of course
end of year by Jan 31st following furnish him with
1099-misc.
This person is not an employee; this is a one-off event, and
he will process the tapes on his own time and schedule, at his
location, under his own direction. He will invoice me for the
total once done, and I will pay him. This is something he does
separately and independently on the side as well. Since he's an
independent contractor, do I still need an EIN?
No EIN needed. Just use your social security number on the
1099's.
Is there any limit to what I can deduct for payments to a
subcontractor? The entire deal is about $50k; I expect his work
to cost about $15k. I am expecting that this will be a deduction
from my gross profits just like travel expenses, lodging, equipment
rental and repair.. Is this true?
You're right on the money.
Also.. this person is a relative (cousin). Is that ever an issue??
(I don't see why it would be -- but who knows.)
Not a problem.

Cheer$,
Harlan LUnsford, EA in LA
 
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C

CLJ1219

That is necessary so that you can pay him the
full amount, without having to withhold a certain high
percentage (28%????)
Harlan,

Isn't that 36%? I've never had to deal with it, but it is
an amount that is rumbling around in my head for some
reason. said:
Did that accountant mention anything about
having your sub contractor fill out a W-9 form BEFORE your
paying him?
LOL. He probably did, much as we tell our clients to do
that as well.

Carol

If you awoke to find yourself a success, you weren't asleep.
Semper Gumby (Always Flexible)
 
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