One of our School of Tax Strategy participants recently asked me the following question: Last year, I opened a trade name for a Marketing company. After that, I was paying individuals for their services, such as delivering fliers, helping on presentations, etc. How do I deduct these payments and are their any filing requirements with the IRS in this regard?
The first question we have to answer is whether these folks are employees or independent contractors. The IRS has a list of factors that help determine this. For more information, visit ProVision's Wealth Strategy U at http://www.provisionwealth.com/wealthu.
For now, let's assume these are independent contractors. As such, you do not need to withhold any taxes or file quarterly reports. You do, however, need to file a form 1099-MISC for each of them no later than January 31st of each year if you paid them more than $600 for the year.
Since you did not have a separate entity, your Marketing company is a sole proprietorship. As such, you should deduct the expenses of the company against the income on Schedule C of your personal tax return.
Remember that to get the greatest tax benefits from your business and investments, YOU MUST LEARN THE RULES! My company, ProVision, has recently produced some marvelous education modules on a wide variety of tax planning topics. Visit http://www.provisionwealth.com/products
for more information.