As a freelance writer, you’re used to getting paid for your work. But as a business owner, you’ll undoubtedly make some payments to your own contractors. Here are a few things to keep in mind as you outsource work to other freelancers and businesses.
Make sure your business can afford the payment
As with all expenses, be sure you have enough money to pay the contractor. One-time projects are a little easier to handle. But, if you’re adding a contractor to your regular payroll, you could run into cash flow problems waiting for your clients to pay you, so you can in turn pay your contractors.
You might start a separate account to use solely for payroll. Whether you use your primary business account or another account, it would be helpful to have a few months of payroll funds in the account to eliminate cash flow problems.
Get the contractor’s taxpayer ID number if you plan to pay more than $600
You’ve probably had clients ask you to complete IRS Form W-9 which is a Request for Taxpayer Identification Number and Certification. The form basically asks for the contractors name, address, type of business, and taxpayer identification number. You’ll need this information to issue a 1099 MISC. Form W-9 has sensitive information, so be sure to keep these documents in a safe and secure place.
The IRS requires you to report payments to nonemployees who work for your freelance business if the payments totaled $600 or more during the year. You'll use the 1099-MISC form to do this. It basically tells the IRS and the contractor how much you paid that person during the year. Generally, you’ll include that amount in the box for nonemployee compensation.
Things get a little tricky if you pay the contractor with a credit card, debit card, Paypal, or another third-party. Because these third-parties are required to report credit card payments to the IRS via 1099-K, you’re not required to send a 1099-MISC form for these types of payments.
- You generally don’t have to send a 1099 to a corporation.
- A different form is used to report compensation paid to a nonresident alien.
- A tax professional can give you full details on tax reporting and other concerns.
Keep track of what you’ve paid and to whom you’ve paid it.
This can be as simple as writing it down in a notebook or keeping track in a spreadsheet. You can also use payroll software to keep track of this information and to complete your 1099-MISC Forms. Another great reason to keep track of what you’re paying contractors is that you can take a tax deduction for these payments. When you’re dealing with the IRS, accuracy is important. Be sure you record and report the right amounts.
Latest posts by LaToya Irby (see all)
- 5 Money Moves to Make Before Year-End - December 31, 2013
- How to Be Better With Your Freelance Writing Income - May 20, 2013
- Managing Freelance Writing Income and Regular Income - May 6, 2013
- What Not to Do When Your Writing Income is Down - April 22, 2013
- When Your Writing Schedule Leaves No Time For Taxes - April 8, 2013