Many business owners rely on freelancers and independent contractors: a designer, a handyman, a subcontractor, a virtual assistant. Paying them is the easy part. Keeping the right records is the part that tends to get overlooked until a deadline is knocking at the door. With the end of the year approaching, this is a good time to talk about it.
Why Contractor Records Matter
Unlike employees, contractors aren’t paid through payroll, so the paperwork doesn’t happen automatically. Businesses are generally expected to report certain payments to independent contractors to the IRS each year, and the filing deadline is typically January 31. If the records aren’t ready, that deadline can turn into a scramble of text messages, old emails, and guesswork.
Four Habits That Make It Easy
1. Collect a W-9 before the first payment. This simple form gives you the contractor’s legal name, business type, and taxpayer ID. It is much easier to get at the start of the relationship than months later.
2. Pay and record contractors consistently. Pay them from your business account and categorize each payment as contractor or subcontractor expense, not “miscellaneous.” A clear paper trail protects both of you.
3. Keep contractors separate from employees. The two are treated very differently for taxes. If you’re unsure how a worker should be classified, ask your tax professional before assuming.
4. Review your totals before year-end. A quick look in November or early December shows who you’ve paid and how much, so nothing surprises you in January.
Behind on Contractor Records?
It happens, especially in a busy year. Clean-up and catch-up bookkeeping can sort past payments by vendor, match them to the right categories, and get your records ready for your tax preparer.
Treating the people who work for you fairly and keeping good records go hand in hand. We’d be glad to help you do both.
“The wages of a hired servant shall not abide with thee all night until the morning.” — Leviticus 19:13
Learn more at abundantgracebooks.com
Peace and blessings,
Monica Martin and Abundant Grace Bookkeeping Team
Grace for your books; freedom for your business.
