When we remodeled our business facility, we hired a contractor to do certain jobs (drywall, taping, mudding, some framing, etc.). He billed us with an invoice for the number of hours he worked and for the materials he needed. Should we give him a M-1099 and deduct him as contracted wages or depreciate the cost of the labor along with the rest of the remodel costs?

You have to depreciate the cost of the labor as a part of the whole costs of the improvement.

If the contractor was a sole proprietor or a partnership, or a LLC under the sole proprietorship or partnership form, you need to generate a Form 1099-MISC for the money paid to him/her for the work.

You must generate 1099-misc if amount is $600 or more. Also you must file it with IRS. For IRS you can not used downloaded 1099-misc. Get from IRS or Office supply shops. http://www.irs.gov/pub/irs-pdf/i1099msc.pdf