I have done several shops for a clothing store. For the shop I have to purchase 3 items and return one right after leaving the store. I am paid $13 for reimbursement. If after returning one item, my cost is still $26. I know $13 is not taxable, it's reimbursement. Is the other $13 a tax write off? I'm not told what to buy or how much to spend. The items are for me. I'm only told to purchase 3 items and return 1. I've also done restaurant shops, where I'm reimbursed $20, but the meal might be over $30. I dine alone. Would the $10 be a write off?

IMHO, you are in a gray area. If you are reimbursed $1 for a convenience store purchase, and the least expensive item is $1.25, then the extra $0.25 is tax deductible, but be prepared to make your case in the event that you are audited. In the case of a required purchase with no reimbursement at all, I buy an item for $1 or less and I personally claim this as a business expense.

If I understand your situation correctly, you are buying 3 items for perhaps $39 total. You return 1 of them, dropping your purchase cost to $26. $13 of the $26 is reimbursed. You want to know if the remaining $13 is a business expense. To the extent that you could have bought 2 items for a total of $13, then the extra $13 you spent is not a business expense because you did not have to spend that money. Even if you had to buy something that you could not use, you might have been able to buy 2 items for $13 or less. The reimbursement of the $13 is not taxable. Consider that if you were in a clothing store, that you could have bought 2 pairs of socks for $13, but you chose to buy a suit for $250. IMHO, you would have a hard job convincing the IRS that there was nothing in a clothing store which cost less than $250. So the extra $237 would not be a business expense.

The same argument applies in the restaurant case. If you could have ordered items for $20, then the extra $20 you spent would not be a business expense. You might prefer filet Mignon, but if you can buy a hamburger for $20, the the extra cost for the filet Mignon would not be a business expense. Some will argue that you should deduct the extra $10 and wait until you get audited, if ever. You get to decide your own risk tolerance.

Personally, I think the unreimbursed amount is a business expense and can be deducted against your income for tax purposes. If, in order to complete your project, you MUST keep two of the three items, and if your reimbursement doesn't cover the full amount of the required purchase, the balance is a legitimate business expense because you couldn't have completed the job for the client otherwise.

But, as myst4au says, you have to be careful, because you don't want to purchase "Cadillac" items when "Chevy" ones were available and could have met the job's requirements. If you're sensible about purchases that are required for a shop, you can deduct those unreimbursed expenses. But keep the shop guidelines together with the receipts, in case there are ever any questions.

Being self-employed for more than 25 years, my experience has been that all expenses necessary to perform the job are deductible. E.g., if I had to make a 60-mile round trip to do a press proof for a client, it was an all-day job, and I had to pay for lunch on my own dime, I couldn't bill the client for that (unless it was in the original agreement). But I could take it as an unreimbursed business expense. I see your situation as similar. In the case of meals, there are limits on how much a person can claim per meal. That goes back to the "rule of reasonableness": Did you need to buy a $65 shirt to complete the shop, or could you have purchased a $25 tie?

I am using the reimbursement amount as the maximum I can claim I spent. If there is also a fee, I am not increasing the amount I can claim that I spent. If there is only a fee, I check if there is a minimum purchase requirement, that becomes the maximum I can claim I spent. Otherwise the fee is my max.

For example: $13 fee, no reimbursement, $13 max I claim spent. $20 reimbursement, regardless of fee, $20 max I claim spent.

If you purchase extra things, that's your choice.

Adding this thought. Business deductions are different. Travel is one of them. A route shopper probably has a better handle on certain business deductions. Just buying extra food or material items during a shop would not be a legitimate business deduction.



Edited 2 time(s). Last edit at 10/23/2015 01:42PM by isaiah58.

@isaiah58 wrote:

I am using the reimbursement amount as the maximum I can claim I spent. If there is also a fee, I am not increasing the amount I can claim that I spent. If there is only a fee, I check if there is a minimum purchase requirement, that becomes the maximum I can claim I spent. Otherwise the fee is my max.

If you purchase extra things, that's your choice.

Just buying extra food or material items during a shop would not be a legitimate business deduction.

Isaiah, I'm not exactly sure what you're saying (forgive me, but I haven't had my second cup of coffee yet!). You're right that buying extra stuff doesn't give you that amount as a deduction. But I'm confused; a business expense is deductible against business income. I don't understand the distinction between a business expense and a deduction.

If it's NECESSARY that you spend more than the allowed reimbursement in order to complete the shop to specification, you can claim the unreimbursed amount as a deduction. So, if you do a shop for which the reimbursement is $1 for a "small item," but the store has no items for less than $2 when you do the shop, you can take the additional dollar as an expense against income.

Simply put: If you receive a combined fee and reimbursement of $25 for a shop, that goes in your "gross income" column. If the allowed reimbursement didn't cover your expense (for a legitimate reason), and you spent a total of $30, that $30 goes into your expense column. So, you end up with a $5 expense that can be deducted against your income for tax purposes.

I don't know the exactl language of the tax laws on this. Maybe somebody here is an accountant or a tax specialist. I just know what my tax preparers and attorneys have told me over the years.



Edited 3 time(s). Last edit at 10/23/2015 06:12PM by BirdyC.

I look at it as what is reasonable. If you could have bought socks and stayed under the reimbursement but there is a limit to the number of socks one needs and instead chose an inexpensive shirt, I have no problems claiming the deduction. I would not buy a $200 pair of jeans and try claiming that.

@bgriffin wrote:

I look at it as what is reasonable. If you could have bought socks and stayed under the reimbursement but there is a limit to the number of socks one needs and instead chose an inexpensive shirt, I have no problems claiming the deduction. I would not buy a $200 pair of jeans and try claiming that.

Exactly! It's that old "reasonable man" guideline....

Like the gas station shops that require a purchase that is not reimbursed. Sure I could buy a mint for $.15 but sometimes like a normal customer I buy a monster for $2.50. I have no problems deducting it.

I have a pretty wide background in taxes. I do try to keep my purchases below the reimbursement limit, but it's not always possible. I consistently run into this scenario on USPS shops: their allowance for "ready post" doesn't cover the cost of the size of the ready post I need to send my item in. And their postage NEVER covers the full cost of the postage. Once, the postage alone was $20, and my reimbursement was $8.95.

However, I do not deduct these post office overages as deductible expenses; I send stuff to friends and family that I would have sent anyway. Well, that's NOT business. All it amounts to is I reduced my out-of-pocket personal costs to send things I would ordinarily have sent anyway. The packages are personal, so it's not deductible as a business expense.

And when I send an Amazon sale (or other on-line venue), I'm deducting that postage already on THAT
Schedule C, not the schedule C for Mystery Shopping (and yes, if you have more than one business, you're
supposed to do a separate Schedule C for each one!).

If I have confused you and adequately muddied the waters, my job here is done......

@ceasesmith wrote:

If I have confused you and adequately muddied the waters, my job here is done......

Spoken like a true tax professional!

I agree on the PO shops the way you do them. I have before sent a dummy package and gone slightly over the reimbursement. Since that was a business mistake that is still tax deductible and I took the tax deduction on the overage.

This is a clothing shop. I buy 3 shirts, bring back one. The two shirts I pay for may total $26, but I'm only reimbursed for $13. I do need the shirts as part of my mystery shopping...I need to look good. I can't wear torn or stained shirts.

You have two different things going on there. Your personal need of shirts does not change the facts you presented that you were to (A) buy 3 items, ( return one item, (C) have a maximum reimbursement of $13. You might not have needed socks or handkerchiefs, but if you could have purchased 3 of them at $6 each (total $18 + tax) and returned 1, you would have socks or handkerchiefs and stayed within your $13 reimbursement. If there were items in the store, such as socks or handkerchiefs, that were $6.50 or less after tax, then buying more expensive items would not result in an unreimbursed business expense.

Indeed if you personally needed shirts, then deciding to make those your purchase was a personal decision rather than a business one.

I think as some have said on here, if it's within reason you can write them off. I don't think the IRS is going to go into a store and see if you could have bought a shirt for $6 instead of $13.

@johnb974 wrote:

I think as some have said on here, if it's within reason you can write them off. I don't think the IRS is going to go into a store and see if you could have bought a shirt for $6 instead of $13.

Also, how many pairs of socks or sets of hankies can one reasonably be expected to buy? I think the key word is "reasonable." Is a $30 everyday shirt a reasonable expense in order to satisfy the requirements of a shop? I would think so. Is a $250 blazer? No. Is a box of nails at Lowe's for $3.49 reasonable? Yes. Is a $75 ceiling fan? No.

When I do the USPS shops, the fee and reimbursement get put onto my MS schedule C, but the entire expense, when I'm shipping an online order, goes into that business's schedule C. Not worth it to split out the cost up to reimbursement against shopping, and the overage against the other business. It all gets accounted for, in the end, and I'm sure that's what the IRS cares most about.

This thread is so interesting!

I'm learning a lot reading through everyone's feedback. Here's my question:

For those who think that the extra $$ beyond the amount reimbursed by the MSC should not be written off, does the same rule apply to other unreimbursed business expenses? For example: let's say I need a new printer/scanner/copier. I've gone to the UPS store for the last 5 pages or so that I needed to have scanned, and have determined that buying one for myself will be more cost effective in the long run. Assuming that this is only a business machine that I will be using for no other reason than for the printing and scanning of Mystery Shopping documents, am I allowed to write off its cost at the end of the year? If so, am I required to buy only the least expensive printer that is available and will do the job I need it to do? Am I allowed to consider ink prices in that calculation? Maybe the cheapest printer today will actually cost me way more over the course of a year than the mid priced one with better ink options. Does the same apply to John's Shirt? Can he argue that the better quality of the shirt he bought (or the usefulness to him of a shirt vs. a pair of socks) was worth the extra expenditure, and therefore a reasonable business expense?

I'm not making a point or trying to be right... I'm honestly asking for people's opinions and experience. TIA!

BirdyC, the MSC is not requiring that you purchase shirts. They are saying rather 'buy 3 items and return 1'. If their reimbursement would not be enough to cover 2 items, then perhaps I should not take the shop or I should be prepared to spend my own money that would not be reimbursed. It does not matter one iota whether you NEED the item or not. That is not IRS's concern or the MSC's concern. The question is whether you could have satisfied the contract with what was available in the store. If you could have, then any expenditure over that is your personal responsibility, not the responsibility of your business.

I'm with Birdy, if the purchase is reasonable then I don't have a problem deducting it.

@CaliGirl925 wrote:

For those who think that the extra $$ beyond the amount reimbursed by the MSC should not be written off, does the same rule apply to other unreimbursed business expenses? For example: let's say I need a new printer/scanner/copier. I've gone to the UPS store for the last 5 pages or so that I needed to have scanned, and have determined that buying one for myself will be more cost effective in the long run. Assuming that this is only a business machine that I will be using for no other reason than for the printing and scanning of Mystery Shopping documents, am I allowed to write off its cost at the end of the year? If so, am I required to buy only the least expensive printer that is available and will do the job I need it to do? Am I allowed to consider ink prices in that calculation? Maybe the cheapest printer today will actually cost me way more over the course of a year than the mid priced one with better ink options. Does the same apply to John's Shirt? Can he argue that the better quality of the shirt he bought (or the usefulness to him of a shirt vs. a pair of socks) was worth the extra expenditure, and therefore a reasonable business expense?

Equipment for your business is a deductible expense, clothing is not deductible unless it is a uniform. A 'uniform' IRS defines as something that would not be worn as 'street clothes'. (Because of some of the vagaries in that, many oil shops, security guard companies and others 'loan' uniforms to their employees and use a laundry service so there is no question about the 'cost' of uniforms as it shows up on their W-2.) So John's shirt and my 'shopper shorts' with pockets don't qualify.

Generally shoppers need a computer and a printer. These are both deductible to the extent they are used for this business. Ink and other supplies are also deductible to the extent they are used for this business. IRS is not going to interfere with what a business feels is appropriate to their needs. Many shoppers also choose to get other tools for their business, such as digital cameras, laptops, cell phones, video equipment, digital voice recorders, etc. All of these are deductible to the extent they are used for the business. Smaller items, such as a new wireless keyboard and mouse, my DVR, thumb drives, pens, notepads, reams of paper, ink and such are 'office supplies' as opposed to 'office equipment'.

If you choose to deduct a computer or other equipment you already own, you need the original date of purchase, the amount paid and the percentage of time you plan to use the equipment for your business as opposed to personal use. Generally the 'useful lifetime' of electronics is 3 years, so don't even bother trying to claim equipment you already own that is older than that.

If you buy a new piece of equipment solely for your business, IRS has a special first year option that can allow you to take the depreciation all in the first year provided it does not make your net profitability less than zero. (I think it is less than zero, TurboTax guides me through that so I haven't paid much attention.) If there is not enough profitability to completely cover the equipment in the year of purchase, TurboTax will throw it on a 3 year depreciation schedule for electronics (furniture, file cabinets and other items will have a longer depreciation schedule). If you stop running your business before the expected lifetime of the equipment has expired and you took all depreciation the first year, you will have to reclaim some of that 'useful life'.

Thanks Flash!

If two items are $13 each, you buy two and the company reimburses you for $13....that's a 2 for 1 deal. I'd take it anyway.

@johnb974 wrote:

If two items are $13 each, you buy two and the company reimburses you for $13....that's a 2 for 1 deal. I'd take it anyway.

Right, but always keep in your mind that if the purchase you made exceeds assignment guidelines listed. As someone else stated, if you were able to make a purchase for $13 to cover it and the excess $13 from the additional purchase cannot be justified as a business expense, you shouldn't consider it one. I guess if your fee well-exceeds to cover the $13 amount, I guess you can argue; however, your goal is to make your business profitable. If you're in the hole from this assignment, you have to reconsider on choose this to be a business expense over a personal expense.

I'm guessing that if one were to look up the IRS guidelines on this issue (if one could even find them!), or talk to a tax expert, one would find that you can indeed write off those expenses that exceed the reimbursement amount as long as they're "reasonable."

You can't write off clothing unless it's a required uniform. But, if you buy a piece of clothing as part of a requirement to purchase clothing during the course of a mystery shop, and that piece of clothing exceeds the reimbursement by a few dollars, I'm sure you can write off that excess amount, as long as it's "reasonable." Not as clothing to be worn to conduct business, but as an item required to fulfill the client's specifications.

What about dinner shops in which you're required to take a companion? Say you can't get an appetizer, dinner for two, and a dessert for the reimbursement, let alone pay for a tip. I imagine that's possible and probable with some dining shops. You declare the fee and reimbursement as income, and the amount of the dinner plus tip as an expense. The difference counts as an offset against income. Obviously you're not going to order the most expensive things on the menu, but if the cheapest thing is chicken, and you or your companion hate chicken, I'm pretty sure the IRS isn't going to say you MUST order it. Even if two chicken dinners are the only things you can purchase and stay within the reimbursement. Or what if the restaurant is out of the items that would keep you within the reimbursement limits? I'm pretty sure the IRS will allow a "reasonable" deduction.

@Tarantado wrote:

If you're in the hole from this assignment, you have to reconsider on choose this to be a business expense over a personal expense.

That's true, but there are other assignments that you'll make a lot of profit on, and that offsets losses on others. Some shoppers take some assignments because they want a nice dinner or they need a specific thing and can get it less expensively by taking a shop that offers that thing. Just because he or she happens to need or want the thing doesn't mean the expense isn't a legitimate business expense. Within reason, of course.



Edited 1 time(s). Last edit at 10/23/2015 06:08PM by BirdyC.

You're not really in the hole. You're getting 2 $13 shirt for the price of 1 shirt.

Unless you were planning on buying 2 shirts anyway you are absolutely in the hole.

If you CANNOT keep the expense within the reimbursement it is a write off, if you can, it is not.

For example, reimbursement is $20. The store sells items for less than $10. You are required to buy and keep 2 items...you can fall within the reimbursement..and therefore can't take a write off..

but if the cheapest items are $15....you can take a $10 write off...

but this is a logistical nightmare to document

@jmitw wrote:

but this is a logistical nightmare to document

Precisely, which is why I go with a reasonable item and fully deduct it.

@BirdyC wrote:

That's true, but there are other assignments that you'll make a lot of profit on, and that offsets losses on others. Some shoppers take some assignments because they want a nice dinner or they need a specific thing and can get it less expensively by taking a shop that offers that thing. Just because he or she happens to need or want the thing doesn't mean the expense isn't a legitimate business expense. Within reason, of course.

While I agree with you, you're right. It'll depend on the how your overall numbers will look. If you're in the hole for an assignment, but are one a route that'll keep your head floating above water, sounds like a profitable day to me!

If I remember correctly, just like medial write offs, the tax process has a base amount that you deduct from your expenses, anything over that is then allowed to be claimed. I know people whom write off clothing that they purchase and use only for work by the way. As for a "home office" the tax laws have been tightened up a lot over the years. You would have to log your usage the same way you log your vehicle miles. Unlike a doctor that converts their basement to an actual separate office, our space somewhere in our house (even if an actual room) has a lot of restrictions.

All of this is along way of saying, make sure you understand how and/or where what you want to write off is applicable. The less you are documenting, the correct way, the less defense you will have if the IRS challenges your return. In case you are not aware, in the case of a IRS claim against you. you are guilty until proven innocent.

@jmitw wrote:

If you CANNOT keep the expense within the reimbursement it is a write off, if you can, it is not.

For example, reimbursement is $20. The store sells items for less than $10. You are required to buy and keep 2 items...you can fall within the reimbursement..and therefore can't take a write off..

but if the cheapest items are $15....you can take a $10 write off...

but this is a logistical nightmare to document

A spreadsheet with a cell for "Comments" for situations like this is simple to keep up with, if you update the spreadsheet on a reasonable basis.

I posted asking a question on write off for reimbursements. I looked at the shops and realized something. The $13 is a fee (payment for the shop) not a reimbursement. For this shop you are required to purchase 3 clothing items, and return 1. You are paid a fee of $13. Are the two items you have to buy, a write off? Before I thought the $13 was reimbursement, it's not. There's no cost limits on the two items you have to buy. Since it's a requirement for the assignment to buy two items, is there any limit to the amount? The fee and reimbursements are two different things for write offs.
If I buy 3 shirts for $13 each, bring back one, can I write off the $26 for the other two? Can I buy 1 shirt for $13, other for $50 and write off the full $63?