Today TaxMama hears from Shawn in New Jersey who tells us: “I plan to be an independent contractor working with architectural renderings. My friends in Asia will be actually doing the work. I will be getting the jobs, collecting the fees, and paying the Asian rendering team. How do I handle this for taxes, since I won’t actually be making all the money, myself?”

Dear Shawn,

That’s a great idea. Especially if you know you can rely on the skills of your friends – and their ability to complete a project in a timely fashion.

The tax part of this is easy.

If your friends are not American citizens or Green Card holders, it’s even easier.

All you need to do is to have them give you an invoice for each project, or on a weekly or monthly basis for hours worked. Cut them a check – or wire them the funds.

Note: I have heard from some folks overseas who’ve been asked to sign a Form W-9ECI to certify that they are not subject to US taxation. There’s no harm in having your friends fill this out. And it protects you.

[Note: If I am wrong about this – readers will tell me, in the Comments, below.]

If they are subject to American tax laws, have them fill out and sign a Form W-9, Request for Taxpayer Identification Number and Certification, before you issue the first check. https://www.irs.gov/pub/irs-pdf/fw9.pdf Remember to get a new W-9 signed each January to keep your files updated.

Then, simply issue them a Form 1099-MISC each January.

You deduct the costs on your tax return as either Cost of Goods Sold, or as Outside Contractors.

That’s all there is to it!

Oh, you don’t need to do a thing with the W-9 forms.

Just keep them in the file until IRS requests them – which may never happen.

And remember, you can find answers to all kinds of questions about paying friends, and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
  • Ask TaxMama :: Where taxes are fun and answers are free
  • www.TaxQuips.com :: The number ONE free tax podcast online
  • IRS Form W-9ECI :: Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States
  • IRS Form W-9 :: , Request for Taxpayer Identification Number and Certification

File Download (0:00 min / 1 MB)