Sole Proprietors are
entitled to deduct all fees paid to independent contractors as a legitimate business expense. This expense
is found on Line 11 of Schedule C and is described there as "Contract Labor." The purpose of this article is
to help you better understand this expense and how to deduct it without worry.
Let's start with a
definition of this expense. The term "contract labor" is somewhat confusing because when we use the word
"labor" we often think of employee compensation such as wages and salaries. Well, Line 11 of Schedule C is
definitely NOT referring to employee compensation. Rather it is referring to non-employee compensation to
people such as independent contractors, consultants, and the like. These are other businesses that are
providing a service to your business. These other businesses could be self-employed Sole Proprietors or
other business entities such as a Corporation, Partnership or a Limited Liability Company
(LLC).
In light of the above, a more succinct definition of contract labor is this: expenses paid for
services rendered by non-employees.
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