Schedule C Expenses - Contract Labor
Contract labor expenses are deductible business expenses when reported on Schedule C (Form 1040) for sole proprietors. These expenses include payments made to independent contractors for services rendered in connection with your trade or business. To be deductible, the payments must be ordinary and necessary for your business operations.
Key Points for Deducting Contract Labor Expenses
- Ordinary and Necessary: The expense must be common and appropriate for your business and help you generate income.
- Reporting Requirements: Payments to independent contractors totaling $600 or more in a tax year must be reported on Form 1099-NEC. The recipient will report this income on their own tax return, and you must include the amount as a business expense on Schedule C, line 27b (Other expenses).
- Documentation: Keep records of contracts, invoices, and payment receipts to substantiate the expense.
- Not Deductible: Personal, living, or family expenses; fines or penalties; or costs of business equipment or furniture are not deductible as contract labor expenses.
Where to Report Contract Labor Expenses
Contract labor expenses are reported on line 27b (Other expenses) of Schedule C (Form 1040). This line is used for all other ordinary and necessary business expenses not deducted elsewhere on the form. Ensure you list the type and amount of each expense separately in the space provided.
Additional Considerations
- If you are a statutory employee, report your net profit or loss on Schedule C, line 31, and include it on Schedule 1 (Form 1040), line 3. However, do not report this amount on Schedule SE (Form 1040), line 2.
- For businesses using a home office, contract labor expenses unrelated to the home office use are reported on Part II of Schedule C.
- Do not include the cost of business equipment or furniture, replacements, or permanent improvements to property as contract labor expenses.
Source:
Schedule C (Form 1040) Instructions
Disclaimer: Always verify details with the official IRS Forms and Instructions or consult with a tax professional. OLT (Online Taxes) provides guidance based on retrieved information but does not offer legal or tax advice.