Taxes on Outsourcing?

18 replies
live in california. lets say i outsource articles to a number of writers but i don't end up paying any of them more than $50, will they have to claim it for taxes? what is the monetary limit where you need to pay taxes on?
#outsourcing #taxes
  • Profile picture of the author auradev
    I believe its anything more than $400 you are supposed to pay taxes on.

    I dont think you have to do anything for that amount, but you need to look to see at what point you have to file a 1099 for them.

    But if they have their own company then you dont have to file anything. Like if you spend $10,000 on google adwords, you write that off as advertising and dont send anything in.
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    • Profile picture of the author Dan C. Rinnert
      Originally Posted by auradev View Post

      But if they have their own company then you dont have to file anything.
      If they have a corporation, you don't (currently) need to send them a 1099.

      If they run their business as a sole proprietorship, then you do need to send a 1099.
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      • Profile picture of the author myob
        You will be losing out on a lot of deductions - even if it's only $50 to each writer if you don't send them each a 1099 regardless of what you paid them. It is up to the writers to decide to file, not you.
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  • Profile picture of the author dvduval
    I thought it was $600.
    (of course if they are in another country, then that countries laws apply)
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    • Profile picture of the author Dan C. Rinnert
      Originally Posted by redstanford View Post

      live in california. lets say i outsource articles to a number of writers but i don't end up paying any of them more than $50, will they have to claim it for taxes? what is the monetary limit where you need to pay taxes on?
      If 1,000 individual businesses each paid a writer $50, do you think that writer could get away with not claiming it on their taxes?

      You have to report your income, regardless of the amount, unless your total annual income is so low that you're not required to report and pay taxes.

      So, if you pay them $50, yes, they have to report it as income.

      Originally Posted by dvduval View Post

      I thought it was $600.
      (of course if they are in another country, then that countries laws apply)
      I'm pretty sure it's still $600 before you have to send someone a 1099, unless they've changed it.
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    • Profile picture of the author GlobalTrader
      Since tax laws are ever changing, suggest you visit IRS.gov and download all the latest 2010 PDF books/pamphlets relating to your business. The level of $600 is what it was up until last year but our wonderful government is always changing things to make our lives easier so you had better get all the latest info direct from the taxman.
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  • Profile picture of the author Steve Sieloff
    Originally Posted by redstanford View Post

    live in california. lets say i outsource articles to a number of writers but i don't end up paying any of them more than $50, will they have to claim it for taxes? what is the monetary limit where you need to pay taxes on?
    If I'm understanding your question correctly, whatever you pay to writers is income to them no matter what the amount is. If it's $50, they would add that to any other income they earn. It's an expense to you, income to them.
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  • Profile picture of the author eholmlund
    Originally Posted by redstanford View Post

    live in california. lets say i outsource articles to a number of writers but i don't end up paying any of them more than $50, will they have to claim it for taxes? what is the monetary limit where you need to pay taxes on?
    It is the responsibility of the freelance writers to claim all their income to the IRS.

    According to the IRS at Reporting Miscellaneous Income :

    It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income.

    All income earned through the taxpayer's business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.

    Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income.

    Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.
    If YOU paid $600 or more to any one writer, then you are also resposible for sending them a 1099-MISC (unless they are a corporation) and reporting that income to the IRS on form 1096.
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    • Profile picture of the author redstanford
      o ok so basically as long as i don't pay anyone person $600 (amount varies place to place) per year, they must claim all income come tax time but i do nothing exceot when it goes above that limit, then i fill out a 1099 for them and i submit a 1096 to the IRS
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  • Profile picture of the author mr2monster
    Originally Posted by redstanford View Post

    live in california. lets say i outsource articles to a number of writers but i don't end up paying any of them more than $50, will they have to claim it for taxes? what is the monetary limit where you need to pay taxes on?

    You have to send out a 10-99 to anyone you paid over $600 to throughout the course of the year that isn't a W2 employee (or anyone that resides in a different country(?) or a Corporation).


    You don't pay taxes on that money because it is an expense. It gets deducted from your gross revenue and you pay taxes on the remainder.

    The outsourcer pays taxes on the amount of money that you paid them.

    I'm not exactly sure how it works if you've outsourced to another country.


    I'm not an accountant, don't play one on the internet... sounds to me like you need a CPA.
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  • Profile picture of the author donhx
    To confirm, you have to get 1099 data (name address and SS number) on any individual you pay $600 or more. This is a an IRS deal, not state. You have to issue the person a 1099 at tax time and send a copy to the IRS.

    You are able to claim the payouts as an expense, so you don't pay any taxes--it is up to the vendors to pay their own taxes no matter what the amount. People outside the US pay income taxes according to the rules in the their own country, so you don't need to send them a 1099.

    There's lots of helpful information for self-employed/small business people at the IRS site. http://www.irs.gov/businesses/small/index.html. Authoritative source!
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    • Profile picture of the author Dan C. Rinnert
      Originally Posted by donhx View Post

      People outside the US pay income taxes according to the rules in the their own country, so you don't need to send them a 1099.
      But I think you need to withhold taxes on them unless you have a W-8BEN on file for them.
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      • Profile picture of the author donhx
        Originally Posted by Dan C. Rinnert View Post

        But I think you need to withhold taxes on them unless you have a W-8BEN on file for them.
        This is an interesting question. The next time I talk to my accountant about something, I'm going to ask about this. I won't ask him special, however since he's a tad expensive. However, it appears that Form W-88EN is issued by the IRS and is proof that the person or corporation is non-American.

        I'm pretty sure you don't withhold tax in any event with the W-8BEN--you don't even withhold from a 1099, since it too is only an informational return.

        The 1099 applies only to doing business with individuals, but I have heard that in 2012 we'll all need to file them when we do over $600 in business with corporations too. That will be an additional paperwork nightmare.
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  • Profile picture of the author arcada
    Hello Everyone,

    Ok, so my question is, I want to start a company (LLC) so I can start selling informational products and to stay compliant with the FTC rules as well as protecting myself personally. So, in the event of selling these items how do you go about collecting taxes/ reporting taxes etc? I want to make sure I do this right so I don't get in trouble for tax evasion.



    Also, I have seen several sites that states their company name along with either DBA or a division of the company name can you one explain how this works as well? Any info on this would be greatly appreciated.

    Thank you,
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  • Profile picture of the author Miles Kral
    re you asking whether they have to pay taxes on their income or whether you have to provide a 1099 form. You don't have to provide a 1099 if you paid them less than $1600 over the year, it may be lower but I think that's right. They have to pay taxes on any income over $600 over the year. But that doesn't concern you one bit, their income tax is their business.

    Miles
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  • Profile picture of the author lesliejadesh
    This will be helpful...

    There is a ton of info in this publication and I recommend you read it all since it changes depending on situations and other things.

    Also talk to your accountant if you choose to pay people that live outside of the U.S.
    Isn't it their job to research this kind of thing?

    In the past i have went straight to the IRS (Telephone Assistance for Businesses:
    Toll-Free, 1-800-829-4933) Even though it's kind of scary to think about calling the IRS it's their job to tell you the tax laws and advise you what forms to file.

    ht tp://www.irs.gov/publications/p515/ar02.html#en_US_publink1000224767

    This is an excerpt from the pub.
    "Publication 515 - Main Content



    Generally, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld (NRA withholding) from the payment made to the foreign person.
    The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Generally, NRA withholding describes the withholding regime that requires withholding on a payment of U.S. source income. Payments to foreign persons, including nonresident alien individuals, foreign entities and governments, may be subject to NRA withholding."




    There is more about the Form W-8BEN or Form W-8EXP. You can search for it by W-8.

    It does say that in most cases any individual, sole-proprietor, company of any sort should be filling out one of these for you.

    Either way, sounds like calling an accountant it the best thing to do here.
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    • Profile picture of the author lesliejadesh
      There are tax treaties with certain countries that either exempt or reduce liability to withhold taxes

      See the list here:

      ht tp://www.irs.gov/businesses/international/article/0,,id=96739,00.html

      you can actually read the treaty with each country when clicking on the link.

      I still say if you want to make sure that you are compliant ask your tax consultant
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  • Profile picture of the author kangenwater
    I am surprised to find out that a lot of outsourcing info do not address the taxation issue.

    I looked at the IRS publication W-8BEN and it seems that non-U.S. individuals abroad doing work for U.S. entities are subject to 30% tax which may have to be withheld subject to some excemptions.

    If I paid $300 per month for a Virtual Assistant outside the United States, should I have withheld $90 per month (30% of $300) instead of paying the full amount? If I didn't withhold the 30%, who will the IRS pursue the tax from - the Virtual Assistant outside the United States or me being the U.S. entity? (looks like I could be left holding the bag, correct?)
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