Hello all!

I've read through quite a few threads on taxes but I suppose I never found a clear answer on what I am looking for. I have a primary job (I am a high school teacher) and I only shop on the side for supplement income (mygoal is to reach anywhere from $300 to $400 a month extra). What is my best option to handle taxes when that time comes? I doubt I'll hit $600 in any given company. I do keep tabs of what companies I've shopped and what the fee they paid me was.

I suppose in the end I want to know, what is a recommended way to avoid getting shafted during tax time?

Declare all fees earned on schedule C. Declare shop expenses on schedule C. Computer self-employment taz. Transfer net schedule C income from shopping to Form 1040. Please carefully read the above item on taxes so that you understand the rules about auto expense deductions.

In the shop expenses, do I include them even if I was reimbursed (for all or partial)?

I do not include reimbursed items. Make sure you claim your mileage as that will deduct a substantial amount from your taxes due.

Shinespike, there are two ways to handle expenses that are reimbursed -

1) do not include them on your Schedule C at all

2) include them as income on Schedule C and then deduct them as business expenses on Schedule C

Reimbursed required expenses are not taxable to you and neither of the approaches above will result in taxes due to reimbursements.

But here are some thoughts:

You want your business to look like a 'business' rather than a 'hobby'. If mystery shopping is a hobby, you get no deductions from your mileage, equipment or other normal business expenses. Approach 2) shows a higher gross 'income' and after appropriate deductions has no more taxable income than approach 1) but makes your endeavor look more like a 'business' than a 'hobby'.

Sometimes you may take some 'fee only' shops that require a purchase. Reasonable amounts for those purchases should be deducted from your Schedule C as 'unreimbursed expenses', which of course then highlights that there may have been some 'reimbursed expenses' to discuss.

Not all companies you work with get competent tax advice (or perhaps they just don't understand what their tax advisor is saying) and 1099s sometimes include reimbursements as income to you. IRS has been told those companies paid you X, while what they paid you was X - reimbursements when it comes to taxes. If you are not claiming reimbursements in the Gross Income of Schedule C, you quickly get into a conundrum of trying to figure out what to do with the excessive claims of the 1099.

Finally, should IRS decide to look at your cash receipts (Paypal, direct deposits, checks deposited, etc.) you will have to reconstruct why you 'received more than you earned'.

So as far as I can see there is zero reason to go with approach 1) even though it is a technically correct answer. With approach 2), every penny received is claimed in Gross Income, whether it was fees, bonuses, mileage, reimbursement or whatever. I make sure that Paypal sends money to the same account that direct deposits go to and that other payments get deposited to. Any IRS inquiry will be easy to match up the Paypal statements with the money movement and the rest of the deposits are all there with vendor. When 1099s come in I don't worry about their accuracy as long as they are in the ballpark.

Because you have another job, make sure you are aware of the differences between commute mileage and business mileage because pulling through McDonalds to do a shop on your usual route to your job is done on 'commute' mileage rather than 'business' and commute miles are not deductible.

I just pay a specialist to do my taxes. I keep excellent records of all business expenses, monies owed, monies paid, reimbursements, bonuses, mileage. With a full-time job and two IC businesses, it is just easier for me to pay someone and then sign on the so-called dotted line. And my tax preparation expenses are deductible for the following year's taxes.

Whether you do the return or hire someone to do it for you it makes sense for you to know what the rules are because ultimately you are responsible for any return you sign.

I basically know the rules but I don't have the time or desire to do them myself.

I appreciate all of the information here. I suppose I havn't been so hot on keeping track of proper miles (and thankfully none of my shops are on the way to and from work; in fact work is a backroad with no shops possible along the way unless I somehow score the gas station down the road from the school lol). I have only done a few shops so I will go back and calculate the miles done. I usually do my own taxes but this first time with this shopping I might go to H&R or similar.

Go to a really good accountant (non H&R). Messing up tax returns in US is no funny busy I hear.. Keeping immaculate records should be something you are doing or will start doing from now on.

So far I was keeping a spreadsheet of the jobs, locations, job fees, time of day, completed/payment received etc. I'll add in columns for business miles and run a total on those as well. Thanks all.

"Getting shafted" I will take to mean that on April 15th you start doing your taxes and don't know what to do or discover you don't have records to document income and deductions you know you had.

I suggest you treat this like a business by keeping good records as you go. What records? All your business income and expenses. Even those expenses you aren't sure apply or will be allowed. You can find out later what is allowed or how much can be deducted.

If you have done your own taxes in the past, you should be comfortable using one of the tax software programs. If you choose this method, get the version for small businesses. Just fire it up, answer the questions, supply the data, and let it do the number crunching and form preparation. This is what I do and it takes me about a couple of hours from start to finish for all my taxes. That includes state & federal returns. Having good records speeds up the process considerably. The programs cost about $60 and the cost is tax-deductible.

Good luck

I certainly am a HUGE advocate of doing your own taxes with or without the software. Using the software means you don't need to research everything or try to figure out which line it goes on.

My ONE experience with having a 'professional' do my taxes was a really bad joke. He felt we should not claim some items because they were 'too likely to trigger an audit' while we could claim others at levels below that which would trigger an audit even though we were not at all entitled to them. My philosophy has always been to claim that which I am entitled to and not claim things I can not justify being entitled to under the wording of the IRS rules. So I went home and redid my return MY way and that was what I submitted to IRS.

TurboTax is my personal favorite tax software though over the years I have tried other brands when they offered special deals and I did not find their questions nearly as clear or comprehensive. Since using TurboTax I have never had an IRS notice of a math error, something in the wrong place or anything else. What more could I ask for?

I am also a HUGE advocate of using the tax prep software. If you are detailed enough to mystery shop, I think you are detailed enough to do your taxes. In fact, with the help of the software and good records it goes more smoothly than many shops.

Speaking of taxes - the last quarter of the year, I do a trial run or two. I look at income and expenses to determine my bottom line. I have shown a profit every year, except one. Want to make sure the IRS realizes I have a legitimate business, and doesn't deem it a hobby, which would disallow my deductions. I also want to see if my business is showing such a profit that I can afford to purchase an expensible copier, computer, camera, DVR, or just some office supplies before year's end. Maybe I need to take more or less reimbursement or fee only shops. Possibly, I need to adjust the amount of miles I'm driving.

I like TurboTax, with a few reservations. On the plus-side, it's user-friendly. Unless, you live in one State and work in another. Most tax prep softwares do not calculate tax credits to another state correctly, unless the taxpayer is really tax savvy. Also, I have heard a negative from more than a few, that customer support is not always available, or supportive in a crunch. The same can be said of some tax prep companies.

It is indeed in our best interest to have an understanding of our tax return.

I know this has been covered before but I did several searches and did not find this topic. I am planning a 4 day personal getaway and driving to my destination which is about 250 miles. Along the way I have scheduled one shop and hope to find a few others. What sort of mileage can I deduct? Would it be only the mileage from the point on the highway where I pass that town to the actual location and back to the highway? I doubt I can deduct the entire 500 mile trip but it would be a great help to my bottom line. lol