# Using Sub-Contractors...



## TxElectrician (May 21, 2008)

mkb said:


> And all these Sub contractors are ok with getting a 1099? Or do you come across some who are hesitant?


You can send me all the 1099 you want. I just toss them, not required for llc.

Nothing wrong with a gc supplying materials for a sub to install, happens every day.


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## cwatbay (Mar 16, 2010)

If you want a 1099 from me, you need to be a legitimate company. Otherwise, your'e and employee. The IRS is cracking down on the 1099 thing. My accountant doesn't let me get away with much either. 

So, if some guy wants you to 1099 him, and, he is just some guy, no company, no insurance, zip....Do you really want to take the possible hit from the IRS. The odds may be low, but you could be the "lucky" one. 

In the past, I have told people to at least make the effort of being a company: fictitious name, business license. That may not always be enough, but at least it shows effort.


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## Jaws (Dec 20, 2010)

One of my main subs I had to help get started being legit as he didn't know how. Went from 1 truck and 2 guys to 14 guys and 6 trucks/vans. Lettered and payroll hands. 

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## Jaws (Dec 20, 2010)

TxElectrician said:


> You can send me all the 1099 you want. I just toss them, not required for llc.
> 
> Nothing wrong with a gc supplying materials for a sub to install, happens every day.


I wasn't aware of that. Good to know

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## Golden view (Feb 16, 2012)

TxElectrician said:


> You can send me all the 1099 you want. I just toss them, not required for llc.
> 
> Nothing wrong with a gc supplying materials for a sub to install, happens every day.


Hold on there, I believe it depends what type of LLC you are. If taxed as a sole prop or partnership, you still need the 1099.


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## TNTRenovate (Aug 19, 2010)

mkb said:


> And all these Sub contractors are ok with getting a 1099? Or do you come across some who are hesitant?


If they are a sole prop they get a 1099. If they are a true company they don't get one.

And as a sub why wouldn't they be okay with a 1099? See they are a sub, that is how we report what we pay them. If we don't we eat their taxes.

If they hesitate, they aren't legit.

They also need to carry their own WC and Liability policies.


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## TNTRenovate (Aug 19, 2010)

Golden view said:


> Hold on there, I believe it depends what type of LLC you are. If taxed as a sole prop or partnership, you still need the 1099.


Correct...LLC as a corp no 1099.


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## TxElectrician (May 21, 2008)

Golden view said:


> Hold on there, I believe it depends what type of LLC you are. If taxed as a sole prop or partnership, you still need the 1099.


I misspoke, I'm sub s corp.


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## Randy Bush (Mar 7, 2011)

NYgutterguy said:


> I sub for many guys. They'll just text me an address with what size and tell me to go do it.
> 
> 
> Sent from my iPhone using Tapatalk


I like it best when it gets to that point with a builder. It works out better for them in the long run. If I have to bid a job I am going to make sure I don't come out on the short end.


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## mkb (Dec 13, 2017)

Looks like I'll be carrying around some W-9 forms for our subcontractors. My buddy who is a contractor pays all his sub contractors cash, he said no 1099, nothing. I assume this happens a lot more than we think?


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## Randy Bush (Mar 7, 2011)

mkb said:


> Looks like I'll be carrying around some W-9 forms for our subcontractors. My buddy who is a contractor pays all his sub contractors cash, he said no 1099, nothing. I assume this happens a lot more than we think?


I question has always been when paying cash especially on larger jobs how do they expense that out?


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## mkb (Dec 13, 2017)

Randy Bush said:


> I question has always been when paying cash especially on larger jobs how do they expense that out?


It doesn't get reported maybe? Not sure


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## Warren (Feb 19, 2005)

mkb said:


> Looks like I'll be carrying around some W-9 forms for our subcontractors. My buddy who is a contractor pays all his sub contractors cash, he said no 1099, nothing. I assume this happens a lot more than we think?


Even when paying cash, A 1099 is required. I don't regard your buddy as much of a contractor.


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## Windycity (Oct 3, 2015)

Randy Bush said:


> I question has always been when paying cash especially on larger jobs how do they expense that out?




Unless the job is an all cash job it is almost impossible, someone has to show the money. 

Usually when a contractor pays cash to subs or employees they are the ones that assume the financial (i.e. tax) hit but they do it because they are making a decent buck so they don’t mind paying the tax


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## cwatbay (Mar 16, 2010)

I don't know about anyone else's accountants, but mine definitely wants to account for every penny paid out to labor. There is some hedge room, but certainly not for several thousands of dollars. 

Someone has to account for that expense or income. If you want to write it off as labor, materials, misc, you will have to categorize it. I have quarterly tax payments to the state for materials purchases, and, I have to account for the labor paid out too. 

You can only cheat or be in the "gray" area for so long. Eventually it will catch up. You will want to buy a house, a newer truck, get loans, whatever, all those write offs will come into play when it comes to your income and expenses. If you keep trying to hide more and more labor as cash payouts, the IRS will take notice sooner or later. It may also be that the sub's you are paying cash will more likely get caught and take you with them.


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## dcustar (Sep 14, 2017)

cwatbay said:


> Someone has to account for that expense or income. If you want to write it off as labor, materials, misc, you will have to categorize it. I have quarterly tax payments to the state for materials purchases, and, I have to account for the labor paid out too.


The IRS is indeed cracking down. If money is shown as coming in, there needs to be an equal amount of money going out and where it goes. Any money not accounted for this way will likely be deemed income to the receiver if it is not shown as a cost or expense item.

https://www.nfib.com/cribsheets/1099-requirements/

Read page 1, first column "Specific Instructions" and page 2, second column "Exceptions" on the 1099-Misc itself:

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf


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## Bambamm511 (Jan 29, 2014)

You should have a detailed subcontractor agreement. Mine is a few pages long that make it clear what the subs responsibilities are. They must maintain all proper insurances, warranty their work, understand fully they get zero company benefits, responsible if their work causes property damage, understand that if they refuse to warranty their work incase of a defect that I can put a claim in on THEIR insurance, etc

However, with all that said, if you do the job, do it good, answer the phone and are professional all around, you'll nost likely get a check for the job even before you're all packed up on that site.

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## daffysplumbing (Oct 16, 2017)

mkb said:


> Looks like I'll be carrying around some W-9 forms for our subcontractors. My buddy who is a contractor pays all his sub contractors cash, he said no 1099, nothing. I assume this happens a lot more than we think?


Paying with cash is the worst thing a contractor can do because when a lawsuit is filed and no records exist the contractor will not get credit for the cash he paid and he will be very sorry for thinking that running his business is so simple. When a contractor does not have a perfect paper trail he will automatically lose. There is nothing better than being able to print your bank statements and copies of checks when there is any type of problem.

The first thing every attorney asks when I have an employee problem is whether I paid with cash or a check.

When an employee or sub is injured and they can't put food on their table or pay the rent guess who the first person is they turn against. Every financial problem they have will be your fault. Just imagine what it is like when an employee or sub has no money coming in and they are going to lose their home, or get kicked out of their apartment.


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## cnstrctr (Oct 16, 2017)

The answer to your question should always be yes. Not having a contract with a subcontractor is opening yourself up to alot of legal risk. Larger companies have their own contracts that are developed by a team of lawyers.

If you're a smaller contractor, in Canada the construction association has developed template contracts which can be used (for example a CCDC 17).


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## builditguy (Nov 10, 2013)

Reviving this old thread, as I recently got an education.

I always require subs to have General Liability insurance and WC insurance. Have to. Otherwise I would have to pay that, when I get my insurance audit, every year. 
I don't pay cash. I could, I suppose, but I would still 1099, so it doesn't really matter, does it. Someone who wants cash, is not legitimate and doesn't want to pay taxes on it.
I also don't have sub-contractor agreements. Never needed them. They give me a verbal price or sometimes a written proposal.
Usually it is a set price, but sometimes they want to work by the hour. Usually this comes up in remodels, because sometimes we don't know what we will get into. I'm also good with this, the subs I use are legitimate and have used same ones for over 20 years.

Here is my education. I had a newer sub-contractor who was a carpenter. We had a project where we needed additional carpenters. He offered an hourly rate and everything was fine. He worked for a few months, then moved on. No problems, just end of the project. 

Here is the issue. He did injure a finger while on the job. Missed a couple days, then back to work. Over 3 years later, he files a lawsuit against my insurance. It was denied 3 times. His lawyer just kept filing. On the fourth time, an arbitrator suggested settling out of court and my insurance settled for $10,000. They said, we know we will win, but it is cheaper to pay the settlement than pay the lawyer fees.
YES. The other lawyer knows this. That is why he files these false lawsuits. They know this also. 
We could go into this for a while, but we aren't going to fix it.

My point. There was one small point that caused a sticking issue. We are a construction company that had our carpenters on the same job. He company is a carpentry company. He was a sub-contractor performing the same type of work, on the same job. My insurance company said this was the only thing that could make him appear as an employee. They said all of the other trades on the job, wouldn't be considered employees because they are a different trade.

So, just a heads up, if you get into this situation. I plan on having a sub-contractor agreement the next time this comes up. Which it will. I am slowly working toward being a General Contractor with one employee and subs. To do this, I have to hire sub-contractors as a necessity. It is possible, when I transition into a full General Contractor, this issue won't be an issue.

Note: In my are a GC is someone who doesn't do any hands on work. They will have a small staff who manages sub-contractors.
I put this, because the definition is different in other areas.


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