I am a hobby dog breeder. When I have a litter of puppies, my labor hours are are generally 140/wk for several weeks and then taper off to around 50 hours/week until the puppies go to their forever homes at 8 weeks. My time is a legitimate cost of doing business, and I should be able to get credit for it somewhere! Can I claim it as an expense without having to pay income taxes on the amount I claim?
Also, if I pay someone to help me, are they an employee? Do I have to issue a 1099 and pay employer taxes? Paying someone to help is generally no more than $150/week and it includes general housekeeping duties that I can't do because my time is dedicated to newborn puppies.
Thank you for asking this question. There is a lot to address here.
1. Hobby income
First of all, you mention you are a hobby dog breeder. That poses the question whether or not you are actually in business. This will determine how your income and expenses are treated. Taxpayers who make money from a hobby must report that income on their tax return. If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21.
There are nine main factors to consider whether or not your activity is a hobby or a business. You can review those here:
2. Paying yourself
How you pay yourself depends on your business structure (corporation, partnership or sole proprietor). I'll assume that you are operating as a sole proprietor. In this case, you can not pay yourself wages and you can not expense the time you work for your company. Instead, you take money out of the company as a draw, after you've been taxed on the profit and paid self employment tax.
3. Paying someone
Whether or not the person you pay is an employee depends on several different factors. They may be an employee or they may be an independent contractor. You will need to determine that based on the facts and circumstances like, who determines the work hours, who provides supplies and equipment, who sets the rules, who makes financial decisions etc.
More information about this determination can be found here:
If you do pay someone as an independent contractor than you likely will need to issue a 1099 (if paid to a person and over $600) and you will not pay employer taxes. If you pay someone as an employee, then you will need to issue a W2 and pay the employer share of the employment taxes.
4. Payment for housekeeping services
Please keep in mind that paying someone to do housekeeping duties because you are busy doesn't mean it is a business expense. Think about it as a 'regular' job. Just because someone paid a maid while they are at work, doesn't make it a tax deduction. If the person is doing work specific to the dogs, than the expense could qualify as a deduction.