subcontracting others (sales, profit, writing, pay)

[Deserterer]

I have a small specialty consulting business (sole proprietor), and sometimes I'm unavailable for parts of the work due to temporary full-time jobs I sometimes hold, and I also can't be in 2 places at once. My business is 100% on contract.

I've had the business for many years but never hired anyone because I didn't want the hassle. Last year an opportunity came up on short notice and I paid someone (who I know very well) under the table to help on a project in another state. I didn't have time to figure out how to hire or contract him by the book, and it was a very small amount of money, under $2000. I figured it worth it to eat the taxes for the extra income it would bring me.

I expect more such needs to come up and going forward I want to go by the book. Since I'm a contractor I know all about the difference between employees and contractors. I don't need any help on that but I know nothing about the legalities, taxing of and perhaps bookkeeping technicalities that I need to know. I still expect any subcontracts to be very small for the immediate future, a couple thousand dollars a year per person.

What do I need to know? I found this page that covers some of the tax reporting requirements but haven't read it thoroughly yet. https://www.irs.gov/businesses/small...nt-contractors

Again this is a very small low profit business so I hope the additional workload and hassle isn't prohibitive. Haha. But I also don't want to "eat the taxes" on other people's income.

[KaraG]

I've hired independent contractors for years and also went through an in house IRS audit. I'm all about keeping it simple and the IRS was fine with that.

Note - I have only used people I already know and the work is straightforward. I pay them $XX per hour and take out no taxes.

They first fill out a paper with their name, address, email, phone and social security #. They write down the hours they actually work.

When I pay them, I add up the hours, put the date, check # and amount underneath on that page.

At the end of the year I add up the amount I paid and if it's over $600 I file 1099's with the IRS.

[Deserterer]

Originally Posted by KaraG

I've hired independent contractors for years and also went through an in house IRS audit. I'm all about keeping it simple and the IRS was fine with that.

Note - I have only used people I already know and the work is straightforward. I pay them $XX per hour and take out no taxes.

They first fill out a paper with their name, address, email, phone and social security #. They write down the hours they actually work.

When I pay them, I add up the hours, put the date, check # and amount underneath on that page.

At the end of the year I add up the amount I paid and if it's over $600 I file 1099's with the IRS.

Your situation sounds similar, although I plan to pay by the job instead of the hour because anyone I subcontract will also have expenses.

Do you use written contracts or just verbal agreements? I think I'd want something written, even if its only an email. I also plan only to use people I know and trust, but misunderstandings are not good for anyone.

Do you have to do anything special at the state level, any forms or filings? I'm going to check with my state tomorrow.

If I start doing a lot of this, I wonder if I should consider an LLC.

[KaraG]

Originally Posted by Deserterer

Your situation sounds similar, although I plan to pay by the job instead of the hour because anyone I subcontract will also have expenses.

Do you use written contracts or just verbal agreements? I think I'd want something written, even if its only an email. I also plan only to use people I know and trust, but misunderstandings are not good for anyone.

Do you have to do anything special at the state level, any forms or filings? I'm going to check with my state tomorrow.

If I start doing a lot of this, I wonder if I should consider an LLC.

I don't use written contracts. If I don't like how someone worked, I just don't use them again. Many years ago I hired contractors and paid by the piece. Again, I started with a very small project and if I didn't like their work or how long they took to complete, I just didn't call them again. In your case, I think I would do the same, put things in writing but start with small jobs with no promises for future work.

I think my state requires an upload of the 1099's, but I could be wrong. 2020 was the first year I didn't use contractors so I really don't remember. Due to covid our sales were down and I gave our employees as many hours as I could.

With 1099's, you don't do them until the following January, so just make sure you collect all their information now.

[Deserterer]

Originally Posted by KaraG

I don't use written contracts. If I don't like how someone worked, I just don't use them again. Many years ago I hired contractors and paid by the piece. Again, I started with a very small project and if I didn't like their work or how long they took to complete, I just didn't call them again. In your case, I think I would do the same, put things in writing but start with small jobs with no promises for future work.

I think my state requires an upload of the 1099's, but I could be wrong. 2020 was the first year I didn't use contractors so I really don't remember. Due to covid our sales were down and I gave our employees as many hours as I could.

With 1099's, you don't do them until the following January, so just make sure you collect all their information now.

Thanks. You make it sound pretty simple and stress free. Of course the wrong people as subcontractors can change all that, so I will be careful. If its as simple as it sounds I may end up wishing I had started doing this many years ago.