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What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

I understand that if I pay less than $600 per month to what I understand are people providing outside services, it's OK to not have a 1099. But I can't find a good definition of the outside services tax deduction anywhere. Just need a list of rules to go by.

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Level 14

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

There is no specific definition for "outside services" -- it is a catchall term for tasks you paid an independent contractor to perform.   The tasks you hire out to independents certainly qualify for this deduction.

Examples include: 
 - Fees paid to sub- and independent contractors
 - Fees paid for additional project support
 - Fees paid for creative resources
 - Fees paid for outside research, data collection

More examples:
- Part-time programmers and coders for special projects
- Subcontractors such as writers, designers, engineers hired for a project
- Additional administrative, data entry support
- Real estate processors
- Stage personnel, audio and sound technicians, choreographers
- Seasonal workers, if paid as independent contractors
- Fees paid for outsourcing specific project work

This list is not all inclusive, but should give you an idea of the meaning of "outside services."

You are correct in that if you paid a subcontractor and independent contractors less than $600 you do not have to issue a 1099.  [If you did have to issue a 1099, you could prepare those forms through TurboTax QuickEmployer Forms.]

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9 Replies
Highlighted
Level 14

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

There is no specific definition for "outside services" -- it is a catchall term for tasks you paid an independent contractor to perform.   The tasks you hire out to independents certainly qualify for this deduction.

Examples include: 
 - Fees paid to sub- and independent contractors
 - Fees paid for additional project support
 - Fees paid for creative resources
 - Fees paid for outside research, data collection

More examples:
- Part-time programmers and coders for special projects
- Subcontractors such as writers, designers, engineers hired for a project
- Additional administrative, data entry support
- Real estate processors
- Stage personnel, audio and sound technicians, choreographers
- Seasonal workers, if paid as independent contractors
- Fees paid for outsourcing specific project work

This list is not all inclusive, but should give you an idea of the meaning of "outside services."

You are correct in that if you paid a subcontractor and independent contractors less than $600 you do not have to issue a 1099.  [If you did have to issue a 1099, you could prepare those forms through TurboTax QuickEmployer Forms.]

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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New Member

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

Fantastic. Thanks so much. Is that less than $600 a MONTH or $600 in a YEAR?
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Level 14

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

$600 a YEAR.
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New Member

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

OK, so here is another twist. My internet business is registered in Oregon. However, some of these folks who qualify as Outside Services and earn MORE than $600 a year are physically located in Argentina. They are not US citizens. What do I do about 1099s in that case?
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Level 14

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

As long as the foreign contractor is not a U.S. person and the services are wholly performed outside the U.S., then no Form 1099 is required and no withholding is required.

However (Treas. Reg. §1.1441-1(b)(3)), it is generally easier to  ask them to complete a Form W-8BEN.  By signing Form W-8BEN, the foreign contractor is certifying that he or she is not a U.S. person.

The Form W-8BEN is not filed with the I.R.S.  It is kept on file with the U.S. payer in case the U.S. payer is audited.  If audited, the Form W-8BEN supports why no Form 1099 was issued and why no tax was withheld.
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New Member

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

This is so tremendously helpful THANK YOU!
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New Member

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

Hi Irene S,

 

Your advice below was very helpful! Could you please share where within TurboTax and Schedule C can I find the Outside Services line item- is that within Income & Expenses Category or Deductions & Credits?

 

Thanks so much!

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New Member

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

What is considered Tax deducible?  Freelancers? IC's?  or Completely outside companies hired to perform a task?

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Expert Alumni

What can I deduct as "Outside Services"? What are the rules on what qualifies as Outside Services? I hire out small tasks to independents, do they qualify as a deduction?

It would include payments you make to someone who is not your employee.

 

Please see IreneS's information above:

 

There is no specific definition for "outside services" -- it is a catchall term for tasks you paid an independent contractor to perform.   The tasks you hire out to independents certainly qualify for this deduction.

Examples include: 
 - Fees paid to sub- and independent contractors
 - Fees paid for additional project support
 - Fees paid for creative resources
 - Fees paid for outside research, data collection

More examples:
- Part-time programmers and coders for special projects
- Subcontractors such as writers, designers, engineers hired for a project
- Additional administrative, data entry support
- Real estate processors
- Stage personnel, audio and sound technicians, choreographers
- Seasonal workers, if paid as independent contractors
- Fees paid for outsourcing specific project work

This list is not all inclusive, but should give you an idea of the meaning of "outside services."

 

For more information:  2019 Schedule C Instructions

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