At Lookout Bookkeeping, we pride ourselves on putting order to your chaos when it comes to your books!
bookkeeping tips
financial reporting
lookout outlook archives
small business tips
CLIENT CASE STUDIES
FREEBIE!
Get our free list of 75 tax write offs to deduct things with confidence. Some might be a no way, really?! moment.
CLIENT CASE STUDIES
September 6, 2024
Hiring contractors can be a great move for small business owners who want to access top-tier talent without the long-term commitment of full-time employees. However, it’s important to understand how hiring contractors directly impacts your financial management. From how you handle payments to staying compliant with tax regulations, bringing on contractors requires a more nuanced approach than traditional employees. In this blog post, we’ll break down the financial implications of hiring contractors and provide actionable steps to keep your business on track.
When you hire contractors, you’re entering into a relationship that offers flexibility but also requires you to manage financial aspects differently. Contractors aren’t on your payroll in the same way employees are, meaning you don’t have to worry about withholding taxes, paying for benefits, or contributing to retirement plans. However, this also means that you need to keep a sharp eye on how you pay them and track expenses to ensure you’re staying compliant with IRS guidelines.
Here’s what changes when you hire contractors:
How you pay your contractors can impact both your bookkeeping and financial planning. Let’s break down some of the most common payment methods and their financial implications:
Actionable Step: Choose a payment method that works best for your business, taking into account convenience, costs, and how easily you can track transactions. Using an integrated system like QuickBooks or Gusto can help streamline payments and keep your records organized.
Hiring contractors can lead to significant tax deductions for your business, but it’s important to know how to track these expenses properly. Contractor payments should be categorized separately from other expenses in your books, making it easier to issue 1099s and deduct these payments as business expenses during tax season.
Consider these key points when managing contractor expenses:
Since contractors are not employees, it’s your responsibility to report what you’ve paid them if it exceeds $600 in a calendar year. This means issuing a 1099-NEC for tax reporting purposes. Failure to issue the correct forms or improperly categorizing payments can lead to penalties from the IRS.
Here’s how to stay compliant:
Actionable Step: Before tax season, ensure you have all the information needed for each contractor—social security numbers, addresses, and total payments—so you can issue their 1099s on time.
Hiring contractors can help small business owners access the talent they need without the long-term commitment of a full-time hire. However, it’s essential to understand how contractor payments impact your financial management—from tracking payments to tax compliance. Making sure you have the right systems in place will help you avoid surprises during tax season and keep your cash flow healthy.
If you’re considering hiring contractors, don’t go it alone. Download our free guide, “Hiring A Contractor,” to learn everything you need to know about bringing contractors on board, including key compliance tips and financial management strategies.
Ready to streamline your bookkeeping? Inquire about our professional bookkeeping services today. We’ll help you track contractor payments, file 1099s, and ensure your business is set up for success. Contact us here to learn more!
Join the list!
Stay up to date on important dates & more when you join the newsletter!
©LOOKOUT BOOKKEEPING 2025
SITE DESIGN BY CREATE & WANDER