Ed Durall wrote:

- quote -

Okay, I can of three instances. First, subcontracted labor
part of Cost of Goods Sold. You know where that goes.

Second, same type labor for self constructed machine to be
used to produce items for sale. Cost is added to basis of
that machine.

Third, subcontracted services, e. g. janitorial, accounting,
included with other same type expenses and not on any line
called "casual labor" or "subcontracted services".

Cheer$,
Harlan Lunsford, EA in LA

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- quote -

Explain, please.

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- quote -

It depends on the nature of the work performed by the
contractor in how and where you deduct or amortize them on
the schedule C or other IRS schedules/Forms.

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Ed Durall wrote:

- quote -

Well, IRC Section 162 pretty much governs its deductibility.
*Where* you list it on Schedule C is pretty much irrelevant,
so that's why the IRS doesn't spend much time or effort on
the issue. However, if you are writing documentation for
preparers who want "the answer" or for a class for preparers
where there is supposed to be "the answer" then you get
stuck with coming up an answer <grin> , and I suspect they
likely ran the line 11 option by somebody at IRS forms who
said "why not?" <grin> or who suggested that when pushed.

But, in reality, there really are only a couple of issues
about "which line" in reporting. First and foremost, the
line/form used has to produce the proper result on the forms
as required by the law--so you have to get to the right tax.
If your reporting method doesn't do that, it's not proper.
And if it does, then you've got most of the issue covered.

Next, the reporting should not appear to be designed solely
to mislead the IRS about the nature of a claimed deduction.
For a strained example--reporting a couple hundred dollars
of mortgage interest for which you did not receive a 1098 on
the charitable deduction line with the idea there will be
less of a question about the charitable deduction. That
would be the "correct" result from a tax law standpoint, but
appears to have been done only to avoid IRS questions about
the legitimacy of the deduction.

Finally, and kind of opposing the above, you might not want
to report in a way that *will* trigger IRS questions even if
you get the right result. So, for instance, reporting
interest income on the "other income" line wouldn't be
"good" even though the proper tax would still be reported
<grin> .

--
Ed Zollars, CPA
Phoenix, Arizona

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The variety of answers to this question has been interesting.

For what it's worth, the Quickfinder Index and the text for
the H&R Block course for Sole Proprietors say fees paid to
subcontractors go on Line 11. Strangely enough, the IRS
instructions for Schedule C completely ignore Line 11. Pub
334 mentions that fees paid to subcontractors are
deductible, but does not say how.

The variety of answers, therefore, seems to be caused by a
lack of direction on the part of the IRS.

All the documentation I read make it clear, however, that
those fees do not go on Line 17. Line 17 is for legal,
accounting, and tax prep fees.

I have always put internet access fees under other expenses.

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- quote -

Actually, these are not three different answers. The "other
expenses" area is Part V.

- quote -

We generally put them on "other deductions" and list as
"Internet access". Since some of our clients pay their ISP
bill with their phone bill, and in those cases it is listed
along with the other utilities. Somewhat depends on whether
they are a monthly accounting client or just a yearly tax
client.

Carol

If you awoke to find yourself a success, you weren't asleep.
Semper Gumby (Always Flexible)

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