Using subcontractors on invoices

Siua · ‎April 19, 2021

I am new to Quickbooks (and accounting) and am trying to understand how to use subcontractors in this software. I have read other forum questions but they don't seem to be specific to what I am trying to do. I use subcontractors as part of the installation for a product I sell, and they give me a quote for each job. Questions:

1. I don't upcharge the contractor fee, I just pass it on to the client. So when creating the product in the "Products and Services" for the subcontractor fee, is this categorized as a sale or an expense on the income account since I am selling their services but I don't profit anything from it?

2. Since the contractor is a company and not an individual, do I charge tax on their invoiced service to the customer since I assume they charge their own taxes when they give me the quote for the job?

3. Since the contractor is a company and not an individual, do I still need to create a 1099 for them like if I was using an independent contractor, or do I set them up as a vendor and don't worry about the 1099?

Thank you for your help!

Rustler · ‎April 20, 2021

Contractors are a vendor, and what you pay them is an expense. If the contractor is not a corporation, then you issue a 1099 each year which covers cash and check payments made. You send them a form w-9, free download google it, and keep that signed form on file.

What you sell to the customer is your income. On the P&L income is reduced by expense, so if you do not mark up the contractor expense it washes out with no effect on the bottom line. Use a Service item to sell this service.

Whether or not the contractor service you sell is taxable is a state decision, check the state website or call them and ask to speak to an auditor (best source of information IMO) and ask

Siua · ‎April 20, 2021

So on my products and services, I added an item for the contractors, but for the income account, I choose the category "Contractors - Expenses" for the service item. Is this not correct? Should the income account be 'Sales - income" instead?

Siua · ‎April 20, 2021

I changed the item in products to the "Sales - Income" field instead of "Contractor - Expense" based on feedback so far. And I added the subcontractor as a vendor.

With this method though I don't see how the service sold as income, and the vendor are tied together. If I sell the service, then pay the subcontractor, then those two items are separate. How could I link each service item sold to the expense I pay to the subcontractor?

As a possible alternative, could this service item in the "Products and Services" listing be considered a "Cost of Goods Sold" instead of a "Sale - Income"?

Fiat Lux - ASIA · ‎April 20, 2021

@Siua

As another option, consider having a construction management app with a subcon management feature to integrate with your QBO.

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Using subcontractors on invoices