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Let's say I have an "employee"

Discussion in 'Business & Tax Advice' started by mollah, Aug 31, 2010.

  1. mollah

    mollah Power Member

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    Say I have a writer who writes articles for me.

    Say I pay him for those articles.

    I also write off the cost of those articles as a business expense, the same as I would a training seminar, or a computer specifically for business, or the way I write off the cost of webhosting.

    Say throughout the course of the year I pay him more than $600 or whatever the tax threshold is.

    Now, if he was technically my employee, then I would have to send him tax forms and all that stuff, right?

    So rather than having him be an "employee" that I am "paying," can I just consider it as me "buying" a product (articles) from him instead? I mean, I certainly don't send tax forms to my hosting company for the business-related expense I buy from them.

    I figure this way, a) there is less complicated tax work for me, and b) that takes the responsibility for the money that I pay him out of my hands (eg. if he doesn't declare it, then that's his issue and not mine).

    Is this legal?

    I'm just outsourcing to him. People who outsource to me sure don't send me tax forms or anything.
     
  2. lovemetender

    lovemetender Junior Member

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    Even if you were just buying articles, you would have to 1099 him. JUst think of him as a contractor, you dont have to pay any of his taxes
     
  3. Risky Business

    Risky Business Junior Member

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    yea, 1099
     
  4. BorisTipsIt

    BorisTipsIt Regular Member

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    Yar, 1099-MISC form. Pretty simple to send out. Send it to him by the end of January and a version to the IRS by the end of February.
     
  5. mollah

    mollah Power Member

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    Why do I need to send him a 1099? Why is he a contractor? I'm buying a product from him.

    Why don't I have to send a 1099 to Best Buy where I bought my work computer? I bought a product from them.

    It doesn't cost me anything to send him one, does it? It won't somehow cause me to have to pay MORE taxes, will it?
     
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    Last edited: Aug 31, 2010
  6. nicklesbr

    nicklesbr Newbie

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    its a good question. I think if he(writer) is providing you with receipts for what you purchased than you should be able to write it off as a product purchased. But if you want to write the money off as money payed to employees than you would need the 1099.
     
  7. mollah

    mollah Power Member

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    Does it cost me any additional money or taxes to send a 1099?

    Is it easy?
     
  8. Risky Business

    Risky Business Junior Member

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  9. BorisTipsIt

    BorisTipsIt Regular Member

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    Mollah, it really isn't a big deal. You just send off the forms. You don't have to pay any additional tax. It is just so the IRS can track it.

    If you are telling him topics and how you want articles written, it isn't a product. It is a service. Just went through this with my taxes. The 1099 reporting requirements actually change next year. You will have to file one for buying products as well as long as the total charges are $600 a year. Yes, you'll actually 1099 Best Buy. Hello Big Brother.
     
  10. teeniegenie

    teeniegenie Supreme Member

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    It sounds like you have an independent contractor on your hands. The IRS determines whether you have an employee or independent contractor based on the amount of "control" you have over that person (i.e., do you set their work schedule, do they work in your office or on their own, do you tell them how to complete the task, etc...). The IRS actually has some good info on its site for this kind of thing if you really want to get into it. Bottom line: you want as many independent contractors working for you as possible - much much cheaper and simpler than employees!
     
  11. mollah

    mollah Power Member

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    gtfo. srsly?
     
  12. BorisTipsIt

    BorisTipsIt Regular Member

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    Yep. Total mess. Businesses large and small are screaming bloody murder, but no fix as of yet. Part of the health care deal. PayPal and Amazon have to 1099 everyone. I think you have to make $20k before you have to do it, but that ain't much.

    Looks like it starts in 2012, not next year. Found this on CNN:

    Starting in 2012...All business payments or purchases that exceed $600 in a calendar year will need to be accompanied by a 1099 filing. That means obtaining the taxpayer ID number of the individual or corporation you're making the payment to -- even if it's a giant retailer like Staples or Best Buy -- at the time of the transaction, or else facing IRS penalties.

    In essence, the 1099-Misc is having its role changed from a form for tracking off-payroll employment to one that must accompany virtually any sizeable business transaction.

    "Just with business travel it would include hotels, rental cars," Henschke says. "Phone service: 1099. Computer service: 1099. Whoever does your postage meter: 1099. You do a little advertising, Yellow Pages: 1099. Your landlord: 1099. You might as well just keep them in your pocket and hand them out as you go around every day."


    Anyone know more?
     
  13. rocket

    rocket Regular Member

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    So what if your independent contractor is in another country? The IRS sure as hell can't enforce tax code to someone in India or the Philippines that's for sure. I still write it off as a service and have had no issues and got the go ahead from my accountant.
     
  14. randomwoman

    randomwoman Newbie

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    Sending a 1099 is not hard and will not cost you more money. In my opinion, its a good move to make in case the IRS wants you to account for your write offs. Also, the contractor may need it for accounting the income they are receiving from you.

    I know its a pain, but it can make things easier if the IRS gets curious :).
     
  15. iamman

    iamman Junior Member

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    IMO, you're purchasing a product(articles). It doesnt matter that someone had to create the "product" because technically, every product created has labor involved. You buy a 2k computer from a local shop run by a guy who rebuilds computers. This guy is not your employee, he sold you a product. So when you deduct it, it will be deducted as computer expense, not contract labor. Actually, since it's an asset purchase, you will depreciate it. I would do the same with the articles. Your website is an asset, articles are "additions" to the asset in my opinion. Even the purchase of backlinks i might consider that way.