Hey y’all,
I’m new in business and I have an accounting question. I sent an lump sum invoice to a client(a non-profit) for work I will be doing for them next week. The bill is for a partial payment that covers my materials and the subcontractors that I will be hiring to do some metal work and excavating. Their bookkeeper called me back and told me I should seperate out the materials and subcontractors so that at the end of the year their system will spit out a 1099 only for the labor part of that invoice. Her logic being that I don’t want to have to be responsible for paying taxes on materials.
However, the way I see it I won’t be responsible for taxes on anything from that invoice because all of it is a direct job cost that I subtract out before I figure any tax on the income made on the job. (Taxable Income = Contract Price-Direct Job Costs Or Taxable Income = Contract Price-Direct and Indirect Job Costs?) At the end of the year I issue a 1099 for the subcontractors work which then becomes his responsibility. The invoice does not include anything for my time for which I won’t get paid for until the end of the project.
Besides I don’t think its any of their business what I pay anybody for anything.
Should I seperate materials and labor on invoices so that it’s easier for me to track the different kinds of expenses I have or should I only do that in my own records that no one else needs to see?
Does this make sense?
How should I be doing this?
Replies
You are right.
It really doesn't make any difference.
I suspect that they are more used to dealing with consultants that don't have any expenses outside of those direclty related to that project such as travel.
And to keep it simple for them they pay expense separate which are just reimbursements and thus the consultants can get by without reporting either.
But for a business like this all of your income goes in one place, regardless of whether you get a 1099 for it or not, and all expenses go in other places (agains whether it is materials or labor or sub-contracting) and you figure taxes on the difference.
Another thing is that they their account is "funds" based (grants) and is much different.
You can bill them either way, but it make more work for you and as you said you would rather not show the details.
Just tell then at in construciton account that you need to show all of the income and all of the expenses reguadless of the nature and they separating them out make it more complicated.
Just tell them to 1099 you the entire amount of all payout, if you don't want to give them a breakdown. You can deal with it on your end at tax time.
Go to the irs-dot-gov site to see everything there is to see about 1099s, and who issues what to whom, and what it all means.
My accountant advises me to 1099 every single one of my suppliers and subcontractors for total gross amount paid. The only exceptions for me are those who are incorporated, and prove to me that they are.
So, after year end, everyone is either 1099'd, W-2'd, or they are an incorporated supplier or sub.
In your case, if you are incorporated, you can tell your client they don't have to issue that 1099.