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Contract Labor - A Tax Deductible Expense

Contract Labor Services are Tax-Deductible Under Certain Conditions


Contract labor services occur when a business provides your business with some sort of service. For example, a sole proprietorship does work for your business under a signed contract, sends you an invoice, and you pay them without holding out any taxes because they aren't employees of your business.

For tax purposes, you must provide those individuals with Form 1099-MISC and provide the IRS with Form 1099-MISC and Form 1096 to show how much you paid them. You can deduct their wages from your taxable income.

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