I don't think meals during mystery shopping would fall under meals and entertainment for tax purposes..and you wouldn't need a client with you to entertain..its the same expense as copy paper when doing it for mystery shopping purposes...


I have been through audits 2x..the 1st it was the company that I worked for as an independent contractor doing cleaning...and the IRS forced them to fire me...the rule is that I needed to have the option to have more than 1 client--i did in fact have the option, but I was in college with 3 other part time jobs (W2 employee)....but the IRS said that since I only had one client---i couldn't be self employed....they even sent me a flyer proving the agent was wrong...but would not listen to reason.

Most recently--i went up againt the IRS lawyer myself..and won...i had been working with young children and deducted things like a Dora the Explorer book which they claimed is not a work expense..at 1st they just said they were denying $2000 worth of deductions...and didn't tell me what so I could explain.....once I insisted on the list--i explained that Dora was not my bathroom reading material...I have no kids..i have no kids to buy presents for...just the kids I work with..i was able to argue eveything they claimed wasn't a deduction....they also tried going against their own regs regarding milage logs.....

you really don't want to have to put uup with their nonsense

There are many ways to interpret the tax code; the IRS makes its rulings based upon "all facts and circumstances" which is why you end up with different outcomes for the dog breeder and the owner of the knocked-up mutt mama.

Bottom line, you need to decide if you are a business or not. If you are a business, and operating with a profit motive, taking a lot of reimbursement-only shops does not support that. It's a "circumstance" the IRS will consider when disallowing the deduction for the meal and turning the reimbursement into income, or declaring your enterprise to be a hobby and disallowing your net loss. By only deducting half the expense, you leave yourself some profit to support your profit motive.

It is up to you to prove your business status and profit motive. As to what to do with reimbursement-only shops already done... if you add everything up, they will get lost in the grand total. It's only a problem if you get audited and the details are examined. The method you choose will depend on how risk-averse you are.

I solve the problem for myself by not taking the shops. i have taken only two reimbursement-only shops, I did the first to get in with the company and to see what the shops were like. I had issues with the first, had to do a lot of explaining and correcting, and did the second to show i had learned and gotten it right this time (both were paid; the first was more trouble than it was worth because they wanted 'food critic' narratives and this was not clear from the instructions). I have not taken any since. I'm in this to make money, not to spend hours on a shop and report for a steak dinner I could make at home for less than $10 - the amount I can make on a 5 minute bank shop.

I'm not telling anyone what to do, just suggesting you think about how your reimbursement-only shops will look to the IRS on an audit -- and it will look like undeclared income -- depending on how many of them you do in relation to the rest of your shopping activity. for me, it was two shops out of 300 for the year. if some of you have 50 out of 200 shops in this category, you might want to rethink what you're doing and why.

Remember that the tax code was written, and will be interpreted by the IRS auditors, for the purpose of collecting taxes -- not for allowing people to collect a bunch of fringe benefits for free and avoid paying taxes on their other income (by taking losses).

Showing a profit in three years out of five will not exempt you from being audited, nor will it exempt you from being declared a hobby if your losses were $500 and $700 and your profits were $100, $25, and $50. "All" facts and circumstances will make the determination, not an arbitrary "rule of thumb" that is often quoted here. I could show any profit or loss I wanted on my return by claiming or not claiming expenses. The IRS knows this. They will not be fooled by creative bookkeeping.

I read through all of this and yes, it is confusing...so just to cut to the bottom line for those of us who do like to get "free" fine dining meals but also consider ourselves to be at least trying to make a profit in other types of shops.
What if those no fee, no bonus, reimbursement only shops we do to trade our reports for something we would otherwise have to pay for such as a nice expensive dinner were not even listed on your mystery shopping jobs lists you use for tax purposes. These would not be on a 1099 even if we were to get one from every company we work for whether or not we earned a minimum of $600 as we do not earn any fee from these shops. So can I report the jobs I do for a fee and take off expenses such as mileage and required minimum reimbursements and just not report those fee free wonderful meals and the mileage I used to get there?
I would liken this to having a pet breeding business but also having my own dog whose expenses are not tax deductible for my business.