How to report 1099-NEC with cost of materials for PC building business

You've got a pretty common situation for anyone doing contracting work that involves materials. This is straightforward to handle on your tax return, and you shouldn't need a tax preparer unless you're uncomfortable doing it yourself. The 1099-NEC reports the total amount the company paid you, which correctly includes both your labor and the materials. When you file, you'll need to complete Schedule C (Profit or Loss from Business). You'll report the full $52k as your gross receipts, then deduct the $43k in materials as business expenses. The resulting $9k is your actual business profit, which is what you'll pay taxes on. Just make sure you have good documentation for all those material purchases - receipts, invoices, bank statements showing the payments, etc. The IRS loves to see that paper trail if they ever have questions.

I was in a similar situation last year with my woodworking business - got a huge 1099-NEC that included all the expensive materials I bought. I was totally confused until I found taxr.ai at https://taxr.ai which helped me figure everything out. I uploaded my 1099 and receipts, and it automatically identified which expenses were deductible business costs vs. personal purchases. The tool explained that I needed to report the full 1099 amount on my Schedule C and then deduct all those material costs as business expenses. Super helpful because I had a mix of lumber supplies, tools, and some equipment that needed different depreciation calculations. Saved me so much time compared to trying to sort everything manually.

Just wanted to update everyone - I tried taxr.ai after seeing the recommendation here and it was exactly what I needed! I was really struggling with organizing all my computer parts receipts but their system made it so much easier. I uploaded my jumbled pile of receipts (some digital, some I had to take photos of) and it sorted everything by category. What really helped was how it identified my GPU and CPU purchases as "Cost of Goods Sold" rather than general expenses, which apparently makes a difference on Schedule C. The Schedule C prep feature saved me hours of head-scratching. Now I'm confident I'm handling my 1099-NEC correctly and maximizing my deductions.

Another thing to consider - if you're spending this much time dealing with the IRS and tax questions, you might want to look into Claimyr if you need to actually talk to someone at the IRS directly. I spent WEEKS trying to get through to a human at the IRS about a similar contractor situation (I do custom electronics installation). I found https://claimyr.com after seeing their demo video at https://youtu.be/_kiP6q8DX5c and it literally got me a callback from the IRS within a couple hours when I'd been trying for days on my own. They have some system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is ready. The agent I spoke with confirmed exactly what others have said here - report the full 1099 amount and deduct materials as business expenses.

I need to apologize for my skepticism about Claimyr! After continuing to struggle with IRS questions about my contractor setup, I decided to try it. Honestly, it worked exactly as advertised. I got a call back from the IRS in about 90 minutes (after previously spending multiple mornings trying to get through). The agent explained that my situation with material costs was completely normal and walked me through the specific Schedule C lines for reporting them. She even explained the difference between direct materials (Cost of Goods Sold) versus other business expenses, which helped me categorize things correctly. It saved me a lot of stress and potentially from making mistakes that could have triggered an audit.

One thing to watch out for - make sure you're tracking inventory if you buy parts in one tax year but don't use them until the next year. I learned this the hard way with my construction business. The IRS has specific rules about when you can deduct inventory costs.

Has anyone looked into whether you should be set up as a reseller for sales tax purposes? In my state, if I'm buying computer parts and then reselling them as part of a finished product, I can get a reseller certificate and avoid paying sales tax on the components. Might save you thousands if your state has similar rules.

This thread has been incredibly helpful! I'm in a similar situation with my small electronics repair business. One additional consideration I'd suggest is keeping detailed records of which specific parts went into which projects, especially if you're working with multiple clients. I learned from my accountant that having clear project-by-project documentation not only helps with Schedule C but also makes it much easier to defend your deductions if the IRS has questions. I use a simple spreadsheet that tracks the date purchased, supplier, part description, cost, and which client project it was used for. Takes a few extra minutes per purchase but gives me complete confidence in my expense reporting. Also seconding the reseller permit advice - I got mine last year and the sales tax savings really add up when you're buying expensive components regularly.

Great thread! I've been doing similar work and wanted to add one more consideration that helped me a lot - quarterly estimated tax payments. Since you're making around $9k profit and this is contractor income, you'll likely owe self-employment tax on top of regular income tax. The IRS expects you to pay taxes throughout the year, not just when you file. If you plan to continue this work next year, consider setting aside about 25-30% of your actual profit ($9k) for taxes and making quarterly payments. This prevents you from getting hit with underpayment penalties and makes tax time much less stressful. I use the IRS Form 1040ES to calculate my quarterly payments. Since this is your first year, you won't owe penalties for this year, but definitely something to plan for going forward if you continue the business.

This has been such a helpful discussion! I'm dealing with a similar situation as a freelance graphic designer who also handles print production - I get 1099s that include both my design fees and the printing costs I pass through to clients. Reading through everyone's experiences has really clarified the process for me. One thing I wanted to add that I learned from my CPA is the importance of keeping your business and personal expenses completely separate, especially when you're dealing with large material costs like this. I opened a dedicated business checking account and business credit card specifically for all my freelance work. This makes it much easier to track legitimate business expenses and creates a clear paper trail if you ever need to substantiate your deductions. Also, if you're buying expensive components regularly, consider whether any of them qualify for Section 179 depreciation or bonus depreciation if they're equipment you'll use across multiple projects (like specialized tools or testing equipment). Sometimes it's more advantageous tax-wise than expensing everything immediately. The advice about reseller permits and quarterly payments is spot-on too. It's amazing how much money you can save and how much stress you can avoid by getting these systems in place early!