Contract Labor

[emaeve]

As a new (LLC) business this year, I hired a graphic designer (owns her own company) for a total of $950 and a website builder (freelance help, no company) for $300 to get my business up and running!  I have Quickbooks and marked both of these costs as "Contract Labor" and am curious: 1) was that the correct designation for both? 2) do I need to create/send either additional IRS tax forms?  Thank you!

[LJane29 · Accepted solution]

Hi emaeve-

In general, if you "contract" out work then this is the right designation but I'm going to give a little detail for each situation you described:

Graphic Designer "owns her own company" - if it is an acutal company (corporation, partnership) then you wouldn't need to send anything in and it would not be a "contractor".  The expense would be classified based on what service was provided.  Let's say they created your logo and packaging.  That is a Branding cost and not "contractor".  BUT if she is self-employed (just like you) then you need to have her fill out a W9 and, because you exceeded the limit of $600, you are required to file a 1099NEC and send it to her (TurboTax Self-Employed can help with this, it includes access to our website that produces and files those forms).

Website builder who you paid $300.  Because this payment is under the $600 limit you are not required to report it on the 1099NEC.

We do recommend that you have any "contractor" fill out the W9 (https://www.irs.gov/pub/irs-pdf/fw9.pdf) since you may need to file a 1099NEC by the end of the year.  For example, what if you want to update/expand your website and you pay the website builder another $300, now you've paid $600 in the year and need to file the 1099NEC.

[Critter-3]

I concur ... always have the person fill in a W-9 BEFORE you employ them or pay them so you don't have to track them down months later for this information.