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?

[alexandmagu]

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.

[IreneS · Accepted solution]

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.]

[alexandmagu]

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

[IreneS]

$600 a YEAR.

[alexandmagu]

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?

[IreneS]

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.

[alexandmagu]

This is so tremendously helpful THANK YOU!

[Dijana M]

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!

[RMThomason]

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

[KarenJ2]

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

[YaNi3]

Input Return:

Form 1040-----Business Income (schedule C)-----Income Statement-----Expenses----Outside Services

Preview Forms:

Schedule C ------Part V   (Other Expenses)

[juanello]

Under contract labor, it mentions Real Estate Processors.  I cannot find an exact definition of that service.  We moved this past year, and I paid Real Estate commissions.  Does that qualify?

[JohnW152]

Please clarify – are you referring to real estate commissions on the sale of your personal residence? 

If so, these are not deductible.  You can reduce any taxable gain when you sell your home by deducting the real estate broker's commissions, but you can’t claim an actual deduction on your return.  Please see the TurboTax article and video Video: Tax Deductions When Buying or Selling a Home for more information.

If this isn’t your scenario, please provide more detail.  Also, where do you see a reference to Real Estate Processors?