| In a sole proprietorship, can you hire consultants to do work and not have to worry about tax issues?

In a sole proprietorship, can you hire consultants to do work and not have to worry about tax issues?

Matthew M asked:


I run a sole proprietorship business that offers technology services. Periodically I get work requests that fall outside of my knowledge and experience.

In those situations, I’d like to be able to enlist outside consultants and pay them for the work.

My question is, can i do this without having to pay taxes, etc, or report any forms to the IRS. Ideally, I’d pay them for the work and it would then be their responsibility to pay the taxes.

Can this be done with a sole proprietorship and if not, HOW can it be done?
Actually, the work will be done on a contratc basis (consulant was a bad word to use). So, since the work will be project based and the workers will never be at my location, do I still need insurance?

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Comments

5 Responses to “In a sole proprietorship, can you hire consultants to do work and not have to worry about tax issues?”

  1. b_vencill420 on June 1st, 2009 9:15 pm

    As a sloe proprieter, not only can you use the services of consultants, you can also employ contract labour.

    The only requirements that you have to meet are:

    1) You must have a certificate proving that your insurance covers them if your Workers Compensation insurance requires it.

    2) You must give them a 1099-MISC by January 31 of the following year, unless you paid them less than $600 for the year, or they are an incorporated business.

  2. boonestudent18 on June 4th, 2009 12:03 pm

    I’m not an expert, but wouldn’t you just put what you paid them under an expense account for consultant fees? Then an expense wouldn’t be taxed, even more it my be a tax credit. I would consult a tax lawyer.

  3. northfulton39 on June 4th, 2009 11:57 pm

    In addition to the 1099 suggestion above, if they are incorporated make the payments to them in their company’s name and let them worry about including it as sales in their tax reporting for their company. You get the write-off as an operating expense.

  4. cloneswin on June 7th, 2009 1:30 pm

    It’s a 1099 versus a W-2.

    They have to qualify, i.e. you can’t just make employees 1099.

  5. jstmother on June 10th, 2009 1:54 am

    You need them to sign a business agreement that states that they know that they are individually responsible for their taxes and benefits, that they will receive no compensation other than the pay for services rendered. State also that you will provide a 1099.

    If an independent contractor has a corporation, ask for the EIN of the corporation, and a statement signed by an officer for the corporation stating that the worker is not to be considered your employee, and that your payment to the corporation constitutes payment in full for the worker’s efforts.

    If you have a Small Business Administration in your city, it might be useful to call and ask if you can speak to someone about how to do this correctly.