Business payments for unusually structured job -- deductible?

[someone]

Hello. I'm part of an LLC that wants to hire someone in an unusual way, and I'm wondering if we will still be able to deduct the payments to this worker.

The proposal is to have a contract saying:

• The worker can work however many or few hours as they want on the project, but they must record hours spent.
• Up to 50k/year, the worker will get paid 100% of "dues"/"sponsorships"/"contributions" coming in through an online payment collection website. (We are for-profit but provide free services that members of the public want to support.)

I'm worried this arrangement seems more like a grant than contract payments.

• I know businesses can deduct payments to contractors. What makes a worker a contractor?
• Or, if this is a grant, are grant payments deductible for for-profit businesses? I know there are some rules around grants in non-profits but had trouble finding info on grants by for-profit orgs.

Thanks for reading and for any insights you can provide!

[BillM223]

You said "worker can work "

You are paying the worker for his/her work.

The is nonemployee compensation.

That makes the worker a contractor to you, assuming that you do not determine items like where he/she works, the equipment he/she uses, the time he/she work, etc.

You will issue the worker a 1099-MISC at the end of the year (for 2019, they changed the form for 2020). You will deduct this amount on your Schedule C (if you are filing a Schedule C) under Contract Labor. Otherwise, you do it as directly on your 1120/1120S/1065.

[someone]

@BillM223

Thanks for the response!

Sounds like jobs can be structured strange ways and that's fine. The proposed contract calls them "contributor" who "works", but it sounds like that kind of detail is not what could make the difference. Please correct if wrong.

Thank you for the info. (I will wait a day or so to see if any other info comes in before selecting best answer.)

[BillM223 · Accepted solution]

Especially in the fields of gaming and influencers, weird terminology is used like "contributions" for what are clearly payments for advertising or demos. I had not heard of grants for this, but it does not matter.

Is the person doing work for you? Are you paying him/her for that work? Does that person pass the test to be an employee (see Tax Topic 762)?

If not, then the person is a contractor, no matter what he/she is called or what the payments are called.

That's unless the person is a partner or shareholder or a number of other things, but that doesn't sound like the case here.