Can I claim/deduct my expenses for a part time recipe tester on my taxes?

Question

I manage an app that generates income. It is a food recipe app and I would like to hire someone a few hours, once a week, for the next two months. I want them to test the recipes. In that two months they will make about $400.00 from me total. Can I deduct this on my taxes for my app business (and is that the same thing as 'claiming'?)? Also do I have to give them a W-2 or any form to file for me. My goal is to be able to deduct this expense, so how can I make that happen?

Answer 1

You have income that you claim (that's good!).

You have legitimate expenses to create that income. One of those expenses will be this $400. The simple answer is that it's a one time expense.

If it were $400/mo, I'd warn you to research whether this is a 1099 employee (an independent contractor) or W2 employee (like our Nanny 20 years ago. We had to withhold taxes, pay FICA, etc).

Answer 2

There are two aspects to your question: Whether your venture is a business or a hobby, and whether your recipe tester is an employee or an independent contractor.

Business or hobby?

When you have income from something that is not a job, it can be classified as a business or a hobby. Businesses allow you to deduct expenses from your income, and hobbies do not. The IRS has some guidance to help you determine which one you have. It sounds to me from the information that you provided that it should be considered a business. In general, any money that you spend on the app, including paying someone to test it for you, is deductible as a business expense.

Employee or Contractor?

If your tester is an employee, you need to withhold payroll and income taxes and provide them with a W-2. If the tester is an independent contractor, you don't need to withhold any taxes, and you only need to give them a 1099-NEC if you give them more than $600 in a calendar year. The IRS has guidance about this, too. Because this seems to be a limited time thing and the amounts are not much, I would not be hesitant to call them a contractor. Even if this is something they do for you on a recurring basis, a contractor is probably the right call. Are they simply cooking the recipes themselves in their own kitchen and providing you feedback? That doesn't sound like an employee relationship to me. Your tester will be required to declare the income that you give them on their tax return and pay tax on it, and they'll need to make their own determination as to whether or not it is a hobby or a business, but that isn't really your concern.