Paying a contractor

I am an independent contractor (sole-prop) and am hiring another contractor to do some software development for me. He is an American citizen. Do I need to do something beyond PayPal-ing him the money if
I want to claim this as a business expense? Do I need to send him a 1099 at the end of the year? If so, how does one do that? I'm planning to incorporate this portion of my business by the end of the year, so would the process be different in that case? Thanks for any advice.
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He should at a minimum, bill you for the services. It would also be good if you had a contract spelling out the services to be rendered and the payment terms.

If payments total more than $600, yes.
Get him to complete a Form W-9 and send it to you for whis purpose.

Use the information obtained from the W-9 (name, SSN/TIN, address) to complete the Form 1099 (it'll also have your name, SSN and address) with that information and put the amount you paid him for the year in Box 7. Send him one copy (at least), and send the original to the IRS with Form 1096 as a transmittal page (it's a total of all 1099's sent).

The process is the same, except you will need a FEIN for your business separate from you as an individual.
--
Paul Thomas, CPA
snipped-for-privacy@bellsouth.net
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Paul Thomas, CPA wrote:

The rest of the information is easy to locate at www.irs.gov -- Paul's comment above with the acronym FEIN might be a bit more cryptic, so look for either EIN or the full name "Federal Employer Identification Number."
-Holly
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I assume you already know this, but just in case you don't, you should have him sign a "Work Made For Hire" agreement *before* he starts the work. If you need more info, I'll post a little more about that.

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