Self-employed and small business owners enjoy the freedom and independence to manage their own business or profession. They decide what, when, and how things are to be done. It may sound like a lot of work to some, but it does not really mean that they don’t get help to operate their business. They alleviate their load and do things more efficiently by hiring the right individual for the required job under a contract labor. 

What is Contract Labor? 

Contract labor is a contract of service to be performed for your trade or business involving persons you do not treat as employees such as independent contractors, freelancers, or gig workers. 

A Business Deduction 

To be deductible, the contract labor must be performed for the ordinary and necessary course of your business trade or profession. As long as the services are essential to your business operations, the cost should qualify as a deduction. 

Examples of Contract Labors as Qualified Business Deduction: 

• A landlord hiring an independent contractor to do the landscaping for his rental properties. 

• Hiring a freelancer to design and manage your business website. 

• A pastry shop owner contracts the service of an individual to deliver products to customers. 

• A woodworker hiring additional people on a per project basis. The labor contract ends once the specific project is finished. 

• Hiring 1099 Accountant for your business accounting and tax needs. 

Form 1099-NEC Reporting Requirement 

If you pay an independent contractor $600 or more during the tax year, you must file Form 1099-NEC (Non-Employee Compensation) to report the payment to the IRS and send a copy to each contractor. This informational return helps the IRS to capture those who underreport their earnings from self-employment. 

Make sure to document the details of each contract labor so you won’t miss a deduction. Keep contracts, invoices, and payment records of all the contractors you hired for your business. Stay organized, focus on your passion, and hire the right people for each job. 

Want to learn more? 

You may want to consult and work with 1099 Accountant – We offer online bookkeeping, online advisory services and online tax and accounting services. We offer reasonable rates. We only work with independent contractors, freelancers, and one-person business. We work with locum tenens from California to New York City and everywhere in between. Yes, even Hawaii! 

Contact us toll-free (855)529-1099 or make an appointment for a free consultation. Contact Us