How do I handle subcontractor payments in my books?
Collect a W-9 from every subcontractor before you send the first payment. This gives you their legal name, address, and tax identification number. You need all of this to file 1099s at year end, and chasing it down in January when you’re up against a deadline is no fun. Make it a rule that no payment goes out without a W-9 on file.
In your accounting software, set up a dedicated expense account called “Subcontractor Expense” or “Contract Labor.” Do not lump these payments in with employee wages or general operating expenses. They are a distinct category for tax purposes and need to be easily identifiable. When you record the payment, always attach the subcontractor’s name as the vendor. This seems obvious but a lot of business owners just enter a dollar amount without selecting a vendor, and then they have no way to pull a report showing total payments by subcontractor when 1099 preparation time comes around.
For construction companies and field service businesses, take it a step further and assign each subcontractor payment to the specific job or project. A project can look profitable on the surface until you realize $12,000 in sub payments were never coded to it. Job-level tracking is the only way to know your true margins per project.
Track cumulative payments throughout the year. Anyone you pay $600 or more during the calendar year gets a 1099-NEC, and the filing deadline is January 31. If you’ve been recording payments correctly all year with vendor names attached, generating those totals takes minutes instead of hours.
Keep invoices from your subs and save payment confirmations for every transaction. If the IRS ever questions these expenses, you need documentation showing what work was performed, when, and how much was paid. A paper trail protects you.
One mistake that creates real problems is paying subcontractors through personal accounts or with cash and not recording the transaction in your books. Even if you reimburse yourself from the business account later, the trail gets messy. Every sub payment should flow through your business bank account so it’s clean and traceable.
Also be aware of the line between subcontractors and employees. The IRS looks at whether you control when, where, and how someone does their work. If you do, that person may legally be an employee no matter what your agreement says. Misclassification carries penalties, so talk to your CPA if you’re unsure about any of your workers.
If you’re behind on tracking subcontractor payments or your books don’t have clean vendor records, an outsourced bookkeeping team in Jacksonville can help you get organized before year end. The sooner your records are accurate, the easier everything downstream becomes, from job costing to tax filing.
The First Coast's Trusted Bookkeeping Partner
The Next Step:
A Free Discovery Call
Tell us where things stand with your books. Whether you're months behind or just looking for reliable bookkeeping going forward, we'll give you an honest assessment and a clear price.
More Questions
What is a fractional CFO and how is it different from a bookkeeper?
A fractional CFO is a part-time chief financial officer who provides strategic financial guidance without the full-time salary. A bookkeeper handles the day-to-day recording and organizing of your financial data. They serve different purposes and most growing businesses eventually need both.
Read answerHow does Florida's sales tax work for service-based businesses?
Most services in Florida are not subject to sales tax. However, certain categories like commercial cleaning, nonresidential pest control, and security services are taxable, so it's important to know where your business falls.
Read answerWhat's the difference between a virtual bookkeeper and an AI bookkeeping tool?
AI tools automate transaction categorization and bank feeds, but they can't interpret what's happening in your business. A virtual bookkeeper applies judgment, catches errors, and adapts to the specific way your business operates.
Read answerHow do I stop running out of cash at the end of every month?
Monthly cash shortages usually come from a visibility problem, not a revenue problem. When you can't see where money is going or when it's arriving, you can't plan around the gaps.
Read answerWhat bookkeeping does a farming or agricultural business need?
Farm bookkeeping goes beyond basic income and expenses. You need to track seasonal cash flow, equipment depreciation, inventory like livestock and crops, government program payments, and production costs per acre or per head to actually understand profitability.
Read answerHow should a law firm handle trust account bookkeeping?
Trust accounts must be tracked separately from operating funds with individual client ledgers and monthly three-way reconciliations. Getting this wrong is one of the most common reasons attorneys face disciplinary action in Florida.
Read answer