In theory every year you earn any fees at all from any MSP you need to file a Schedule C business with your 1040 return (or whatever variant of the 1040 you use). It does not matter what your filing status is and has no effect on your filing status. You can file on line or by paper or however but you need to claim your mystery shopping as a Schedule C whether you make a profit or loss.
For your first year of filing you need to determine whether you are going to be a cash or accrual 'business'. All this means is that as a cash business you claim as revenue for the year what you actually have received by December 31st. As an accrual business you claim as revenue what you have earned at least on paper by December 31st regardless of when it is paid. Either way is valid, though I prefer the accrual method as I can better control the offsetting expenses to adjust what the bottom line of my business will be by 12/31.
YOU NEED TO FILE A SCHEDULE C WHETHER YOU RECEIVE 1099s FROM COMPANIES OR NOT.
Reimbursements are not taxable. There are two ways to handle reimbursements. One is to not claim them at all, which makes me personally uncomfortable. Second is to claim fees AND reimbursements as revenue and then deduct out the reimbursements on the Schedule C. In my mind, it makes my shopping look more like a legitimate business rather than like a hobby.
Hobby vs business is something that IRS can question. It is advisable to show a profit at least every few years from your business to prevent it automatically being disallowed as a hobby. If IRS determines your business is just a hobby there are a lot of deductions you will not be allowed to take.
Things you can deduct:
If you claim both your fees and your reimbursements as revenue you can turn around and claim reimbursements as "reimbursed business expenses"
If you keep good mileage records of trips to do your shops you can take the mileage deduction, which for 2008 was 50.5 cents per mile for miles driven between 1/1/08 and 6/30/08 and 58.5 cents per mile for miles driven between 7/1/08 and 12/31/08. This method takes into account NO OPERATING EXPENSES for your vehicle as they are already accounted for by estimation in the per mile deduction. There is also a different mileage option that includes depreciating your vehicle, claiming your operating expenses (gas, repairs, maintenance, insurance etc.) and calculating the percentage of use of your vehicle that was personal versus business to determine your allowable deduction. Because you cannot change your method over the life of the vehicle claimed, you generally will do better with the cents per mile method with documentation of miles for shops. Note: If you are only working out of your home your mileage for a shop is from your door to the location and return (with additional shops noted if you are doing a route). If you work outside your home in addition to doing shops you MUST read the IRS mileage deduction information carefully because door to door mileage may not apply.
Tolls and parking. These items are separate and apart from your regular vehicle deduction. Keep track and claim them.
You can deduct as "unreimbursed business expenses" those purchase required to perform a 'flat fee' job where, for example, are paid $12 but must make a gas purchase, a convenience store purchase etc. With some cautions you can also deduct as "unreimbursed business expenses" required expenditures that exceed the reimbursement. As an example. You have a $1 reimbursement to make sure you get a receipt proving you were at a location at a particular time. You arrive and discover there is nothing in the store for $1 or less to get that receipt. You must spend at least $5 to get a receipt. If you purchase the $5 item you have a deductible $4 as "unreimbursed business expense". If you decide to buy a $10 item instead, it is still best to claim only $4 as an "unreimbursed business expense".
You can deduct your office supplies needed for your business--stamps & envelopes to mail in receipts, paper & ink for your printer etc. I also include in office supplies small equipment such as computer accessories, software and generally items under $200.
If you purchase a computer or expensive camera or printer etc. you can deduct them as equipment. You will be entitled to a deduction according to use so if you purchase a $500 computer and use it 100% for your business you will deduct $500, but if its use is 50% for business you will deduct only $250. You can generally fully deduct this equipment in the year of its purchase or you can depreciate it over time. Be aware that equipment has different 'expected lifetimes' of usefulness of 3, 5, 7 or more years and if you stop your business before the equipment's 'expected lifetime' is over, you may have to follow up with "reclaiming" some of the value you have already deducted as revenue.
These kinds of deductions when properly used will prevent your business from ever having a highly taxable impact on your return. But you must keep records that you and IRS can understand and follow. This is why it is so important to be methodical in your record keeping. I find that an Excel spreadsheet is my best friend in all this while others use software such as Quicken or Quick Books to keep track of it all.