Taxes can be confusing, but knowing how paying contractors affects what you actually owe can save you big bucks. Let’s break it down with a simple example so you see what really matters — and how WorkMade helps you keep track.
Imagine you’re a photographer who made $10,000 for a project. To get it done, you hired an editor and a second shooter, paying them $3,500 and $1,000.
If you tell the IRS about these payments the right way, they count as business costs — money you spent to get the job done. If you don’t, the IRS thinks you earned the full $10,000 yourself and taxes you on all of it.
Here’s what that looks like side-by-side:
What You Earned & Spent | Reporting Contractor Payments (Right Way) | Not Reporting Contractor Payments (Common Mistake) |
Money you got paid | $10,000 | $10,000 |
Money paid to editor | $3,500 | Not reported |
Money paid to second shooter | $1,000 | Not reported |
Total money paid to helpers | $4,500 | $0 |
Money you keep after paying helpers | $5,500 | $10,000 |
Estimated tax rate | 25% | 25% |
Taxes you owe | $1,375 | $2,500 |
Difference — extra tax you pay if you don’t report correctly | — | $1,125 more in taxes |
What does this mean?
If you don’t report what you paid your helpers, the IRS thinks you made $10,000 and taxes you on all of it. But when you report contractor payments correctly, the IRS only taxes you on the money you actually kept after paying your helpers — saving you over $1,100 in this example.
WorkMade keeps track of this automatically for you, so tax time isn’t scary, and you only pay what you truly owe.