Can I Write This Off?

Can I write off contract labor?

TL;DR

Yes, contract labor expenses are generally deductible as a business expense.

Detailed Answer

Contract labor expenses are deductible if they are ordinary and necessary expenses incurred in the course of operating a business. This includes payments to independent contractors for services directly related to your business operations. However, you must ensure that the individuals are correctly classified as independent contractors and not employees, as this affects tax reporting obligations.

Where to Put It on the Tax Form

Report this deduction on Schedule C (Form 1040) under 'Contract Labor'.

Real World Example

A freelance graphic designer hires a web developer as an independent contractor to build a website for a client project. The payments made to the web developer are deductible as contract labor expenses.

Audit Risk & Documentation Tips

To minimize audit risk, ensure you have a written contract or agreement with the contractor, maintain accurate records of payments made (e.g., bank statements, invoices), and issue Form 1099-NEC to contractors who are paid $600 or more during the year. Proper classification between independent contractors and employees is crucial to avoid penalties.

IRS Reference

IRS Publication 535, Business Expenses; IRS Form 1099-NEC Instructions

Relevant Industries

Small BusinessFreelancersConstructionConsultingIT Services

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on July 7, 2025

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