Some people have asked if you can use both miles traveled and the cost of gas as a deduction on your income tax.

You cannot take both. You will come out better claiming mileage.

Get a small notebook that you can keep in your car that is labeled with the year and that it is for business miles. Each trip will require an entry that has: date, destination, purpose of the trip, odometer reading at the beginning of the trip and distance traveled.

Press the reset button on your trip meter before beginning your mystery shop trip. At the end of your trip use that figure as the distance traveled.

The entries will look something like this:

date: mm/dd/yy
destination: Tulsa, OK
purpose: mystery shop at xyz company
odometer: 21067
distance: 17 miles

At income tax time you will be filling out a Schedule C. Put the total amount that you made in 'other income'.

There is a section for mileage where you put in the date the vehicle was placed into service, total miles driven during the year and business miles. Add up the distances from each entry of your notebook and use this as the business miles. The form also asks if you have written proof for your claim. Answer 'yes' because your notebook is the proof.

Read the Schedule C instructions for the amount to use in calculating the deduction. The amount has been changing as the price of gas has gone up. The amount that you calculate goes in the box for vehicle expense.

At the end of the year the note book gets put in with your tax records. Get a new notebook for the following year. Any office supplies that you purchase for your mystery shop efforts are tax deductable, such as the notebook. Keep the receipts for these and enter the total in the appropriate box.

Be sure to read the instructions for other forms that you may need to fill out.

What if I make a purchase and only get reimbursed for a fraction of that individual purchase. ( Eg. Purchase is required but with the limit they give it is not possible to find an item of that amount) Is the remaining portion of that purchase deductible as a business expense?

It is truly best to contact a tax professional on some of the issues posted here.

My tax advisor has stated that there has to be a potential for profit in order for you to claim the deductions. Say if your commission is $10 for a shop and are reimbursed up to $5 and spend $20, there's not a potential for profit and the IRS may disallow the deduction. Then you possilbly would have to report the information not a a Schedule C, but on the front of the 1040 and pay taxes on all the income with no deductions. Again, best to ask your tax professional to get their advice on all the deductions you can claim. Who knows, you might get information from them on deductions you are missing out!r

That brings up another question. Should you claim reimbursements as income? Specifically if you take a restaurant assignment just for the free meal and you are not getting paid, just being reimbursed for the check, do you claim it on your taxes?

I agree every shopper should contact a tax consultant. Keep in mind it helps to know things because not all tax consultants are up to date on MS tax issues, always ask how much experience the consultant has in this particular area.

I claim my reimbursements as income and my expenses as expenses. I do this because I want to claim the mileage for these shops. I can do a restaurant for a $25 reimbursement. If I do not report it as income, I am not able to claim the mileage. So even though I had $25 in income and $25 in expense and all seems equal, I am out the 40 something cents a mile. Last year I claimed $7000 in income, this included my reimbursements which I deducted under expenses. That brought my total down to $4000. I claimed mileage, office supplies and equipment and a portion of my Internet. I ended up with a business loss of $100 meaning I did not have to pay any taxes on my MSing this year. I am allowed to do this for at least one more year before the IRS will see this as a hobby and not a business. Again this is what my tax consultant advised me to do in order to be legitimate. I also saved money by compiling the numbers for my consultant.

The most important thing you can do is keep accurate records. If you are ever audited and have proof of your claims, you will win the dispute.