How to Fill out Schedule C for Independent Contractors and Advertising Expenses?

These expenses should be categorized under "Contract Labor" on Line 11 of Schedule C. This is where you report payments made to independent contractors for services provided to your business. Since you've already issued 1099-NECs (which is correct for payments over $600), you're on the right track with your documentation. However, there's a dual aspect to your situation. While the contractors themselves go under Contract Labor, the purpose of the video game as a promotional tool for your main business means you could potentially categorize the overall project under "Advertising" on Line 8. This depends on how you view the primary nature of the expense. The most accurate approach would be to list the payments to your contractors under "Contract Labor" and then any additional costs directly related to the game's development (software, hosting, etc.) under "Advertising" if they're purely promotional in nature.

After struggling with a similar Schedule C situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out exactly where to categorize my business expenses. I had hired some freelancers for marketing materials and wasn't sure if they belonged under contract labor or advertising. The tool analyzed my receipts and PayPal statements, then gave me clear guidance on how to properly categorize everything. What's really cool is that it explained the IRS rules for each category so I understood WHY things were classified a certain way. Saved me hours of research and probably prevented an audit!

So I decided to try taxr.ai after reading about it here, and wow - I'm actually impressed. I was skeptical (I've tried other tax "helpers" before), but this one actually saved me hours of headaches with my Schedule C. I uploaded screenshots of my PayPal business transactions and some invoices from contractors, and it immediately suggested the correct categorizations. What really surprised me was when it flagged one of my expenses that I had incorrectly lumped with advertising - turns out it should have been under office expenses based on its actual use. The explanations it gave about the different Schedule C categories made so much more sense than the cryptic IRS instructions. For anyone struggling with expense categorization, especially with contractor payments like the original poster, it's definitely worth checking out.

If you're having trouble getting answers about specific Schedule C questions (like where to categorize those contractor payments), I found that calling the IRS directly is actually the best way. Problem is, I spent DAYS trying to get through on their phone lines. Then I discovered https://claimyr.com and it changed everything. They basically hold your place in the IRS phone queue and call you when an agent is about to answer. I watched their demo video (https://youtu.be/_kiP6q8DX5c) and decided to try it when I had questions about reporting contractor payments similar to yours. Got connected to an actual IRS agent in about 45 minutes instead of spending hours on hold. The agent gave me definitive answers about how to categorize my specific expenses on Schedule C, which saved me from guessing and potentially triggering an audit.

Ok so I need to eat some crow here. After my skeptical comment above, I was still struggling with some Schedule C questions about contractor payments that no one could answer clearly, so I reluctantly tried Claimyr. I was 100% prepared to come back here and report it was a scam, but... it actually worked exactly as advertised. I got a call back in about an hour, and then was connected directly to an IRS representative. The rep confirmed that my music contractor payments should go under Contract Labor (Line 11), not Advertising, which is what I suspected but couldn't get a straight answer on. The time saved was honestly worth it since I had already wasted two afternoons trying to get through on my own. I hate that this service has to exist, but given how impossible it is to reach the IRS directly, I get it now.

Just wanted to add my experience - I've been filing Schedule C for my side business for 3 years now. For contractor payments like yours, they definitely go on Line 11 (Contract Labor). One thing to watch for: make sure you've kept good records of those PayPal payments. PayPal now reports to the IRS through 1099-K forms for business accounts with sufficient volume, so your payment records should match what PayPal reports. And don't forget that since you've paid contractors and issued 1099-NECs, you'll need to file Form 1096 to summarize all the 1099s you've issued. That tripped me up my first year!

Has anyone used TurboTax for filling out Schedule C with contractor payments? I'm wondering if it walks you through categorizing these kinds of expenses or if I need to know exactly where everything goes beforehand.