Using contracted labor on schedule C

[Greg]

Can I use contracted labor if the client did not issue 1099's to the people it paid?

[Accountant-Man]

I wouldn't. As soon as your total exceeds $599, the IRS will ask about 1099s issued.

ps Why would you prepare a return for a taxpayer who did not issue 1099s for contract labor, for those who were paid more than $599?

[dkh]

I would.  IRS could issue a penalty for not filing 1099s but they would not disallow the expense.

[qbteachmt]

"IRS could issue a penalty for not filing 1099s but they would not disallow the expense."

Sure, because what could possibly go wrong, other than, penalties and being found subject to worker misclassification?

[dkh]

Let's be realistic.  Not every 1099 that should be issued gets issued.  That doesn't make the expense non-deductible to the taxpayer.     

[dkh]

Sure, because what could possibly go wrong, other than, penalties and being found subject to worker misclassification?

The OP isn't asking if the classification is correct.  Who says it is not contract labor??   Just you - how do you know - you don't.   

[IRonMaN]

We don't live in a perfect world.  Should we be examining every payment made by a business and if they missed issuing a 1099, we reduce their expenses by those payments?  Should we be examining everybody that is treated as an independent contractor to verify whether or not they should be an employee?  If so, I'm getting too old and it's time to retire.  I say take the expense, lecture the client on what should be done next year and move on to the next return.  And in closing .................................. CAGMC.

[qbteachmt]

No one here has stated why the taxpayer isn't in compliance. No one has stated the taxpayer isn't willing to change that, either. When someone isn't in compliance, you should reveal the possible consequences. The taxpayer should be informed as to what is required and what can happen. I use the word "discoverable" as in, if any of this is examined, there is plenty about this to be examined. I didn't state there was misclassification; it is possibly revealed, when something is examined. There is no yes/no condition here. It needs to be discussed. Even the penalties provide for variability: not issuing the forms has a different penalty than not being willing to issue the forms.

"If a business fails to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $50 to $270 per form, depending on how long past the deadline the business issues the form. There is a $556,500 maximum in fines per year. If a business intentionally disregards the requirement to provide a correct payee statement, it's subject to a minimum penalty of $550 per form or 10% of the income reported on the form, with no maximum."

[IRonMaN]

And based on the information provided, we might be dealing with someone that paid two people $600.23.  Additional facts can often change responses here.   But without an abundance of facts, I'm not about to suggest to Greg to have his client buy an airline ticket on the first flight out of Dodge because it sounds like they are going to open up Alcatraz again just for his client.

[The_AntiTax_Man]

You are assuming that all contract labor paid $600 or more requires a 1099-NEC.  Your assumption may not be correct.  If the contractor is incorporated a 1099 is not required to be issued. 

Fill out the Schedule C whichever way makes the most sense to you.  As long as the correct amount of net income is being reported and the correct amount of income tax is being remitted you are ok. 

Inform the client regarding their obligation to file information returns when required and the possible consequences if they do not comply.  Its best practice to cooperate with your government.