If you work as a sole proprietor (which most freelance writers do) and the demand for your services increases, you don’t need to hire employees. You can subcontract to other writers and outsource.
Subcontractors are great. You’re not responsible for their affairs, and they’re only responsible to provide what you commissioned. There are no extra expenses or “employer shares” that you need to pay. When the project is over, it’s over. You declare your income, they declare theirs. There are no ties or strings to each other.
To a certain extent, that is…
If you and your subcontractor live in the U.S and you paid your subcontractor over $600, you should provide the individual with a 1099. If you and your subcontractor live in Canada, you should provide the person with a T4A.
Cross-border shopping (when you live in a different country than the other person does) pretty much absolves you of supplying forms and paperwork. Each of you is still responsible for declaring income or expenses. You are also responsible for proving to the government that the person you paid money to or received money from doesn’t live in your country.
That gets tricky. Sometimes all you have is an email contact and the person’s first name. What you do have to show the government is that you’ve made a decent effort to procure some information about the person.
If you’re lucky, a simple request for an address for income tax purposes solves the problem. Not all people are comfortable giving out their identifying information though. Try asking the person which country or city he or she lives in. If you have the individual’s phone number, you can figure out the city the person lives in by looking up the area code.
Don’t freak out. You aren’t stalking anyone and these business requests are legitimate. If you were hiring an employee, you’d ask far more personal information. You aren’t attempting to steal anyone’s identity – you’re trying to earn a living honestly. Nothing wrong with that.
Worst case scenario? You don’t have any information on where the individual comes from at all. That’s okay – report the income or expense anyways and use your best judgment.
If (or when) you are audited, explain the case and let the government help you figure out what to do about the situation. You’ve done the best you could.
[tags] outsourcing, subcontractors, tax forms for outsourcing, reporting expenses[/tags]
Hey
Found you via Naomi’s blog. What a great series! I’m glad you provided this, as I’ve been getting some nibbles recently about being a contractor for folks in Canada, so it’s eerily timely.
Wonderful and thoughtful comments on IttyBiz, by the way!
Oh, cool – glad that we’re helping you out with some of our know-how! That’s nice to hear, so thank you! Thanks for the compliments, too – I like Naomi’s blog a great deal.
Good luck with the Canucks, too! If you need advice on wearing a toque, ice fishing or how to heat an igloo without melting it, let me know!
Hey Susan, thanks for stopping by! And if you need advice on dealing with our very likable- and often blunt – neighbors to the North, I have plenty of experience to share.
Hi guys – hey susan – funny to find you here too…
ok so, we grew again this year and now have paid contractors in Canada & Australia as well as the US.
I just realized now that I was an idiot and sent them W-9. Wrong for eh?
I think I need to send them a W-8 (is that right?). Does the 1099 stay the some or does that change?
I am meeting with our CPA next week so I’ll get that all figure out – thanks for making me think of it. Well timed blog!!!
-S
@ Shane: From what I can see on your site, you’re located in Santa Cruz, CA. If your subcontractors are in Canada and Australia, there is no need to send them papers that I’m aware of.
Since you’re working with independent contractors and subcontractors, the W-8 doesn’t apply.
Independent contractors in your own country receive a Form 1099-MISC from every organization that paid them $400 or more during the tax year.
1099 forms are used to report income to the U.S. Your Canuck and Oz subcontractors report income tax to their own countries’ government, not yours.
I wasn’t kidding when I said you don’t have to send any paperwork to your cross-border contractors.
Btw… I like your blog, Shane
I subscribed.
Thanks James!! Glad you like us. I’m not a fan of subscribing – I type you in by hand (thanks for the short url).
Just to correct a few things – 1099 minimum amount is $600 in the US (unless that changed a few months ago).
I checked with my CPA and he agreed with you. Technically, my foreign contractors should fill out a w-8 and report that they paid the income tax to a foreign government. That said it is just busy work and most companies don’t bother. Either way, its not my problem (so says my cpa).
=)
The CPA agrees with me!! *dances* I was actually biting my nails, waiting for someone to come back and say, “MY accountant says you’re a hack!”
Ach, typo. Yeah, it’s $600 – why I put $400 is beyond me. Good catch on that, thanks.
I think that “It’s not your problem” is taught to all CPAs in school. Mine says the same (only it comes out sounding like, “C’s'pa ton problème, tabernac!)
Oh, by the way, I was just saying to Harry the other day:
“Can we change URLs on the blog? Man, this is so frickin’ long to type… do you know how hard it is to type jcmefreelancewriting quickly? It’s impossible. Let’s change URLs to something short like goodblog, okay?”
Then we got into a long debate about how easy (read: not) it would be to change URLs to our blog. Anyone been there, done that, and wanna share the experience?