Yes it is true you don't HAVE to have an EIN, but it is advisable to have one so you are not giving your SSN out to everyone. I was referring to things that help support the idea that you are a business, and a business bank account is one of those things that helps show you are a business and not a hobby. Required? No. Advisable? Yes. Business licenses cost money too, but they also will help you if your business falls under scrutiny and you have to prove it's not a hobby.

But I agree you should do your own research on the IRS.gov website about small businesses, where you will find the information I gave above. For the record, I've been preparing taxes for over 15 years and have over 130 clients, about half of which are business accounts.

When I quit my day job and became self-employed as an accountant and tax preparer, I went to classes on small businesses and taxation and this is the advice we were given on how to avoid being declared a hobby. But don't take my word for it. Do your own research.

The thing is, if you get audited on your "business" and you are not complying with local laws for being a "business" or having a home office, that is going to work against you. You can't tell the IRS you're a business while simultaneously pretending to your local authorities that you are not. I wouldn't worry about these things over much the first couple years of mystery shopping, but if you're still doing it in the third year and still not making a profit, these are things that might help you prove your "business" intent in years 3 and beyond, even if you are still losing money.

You need to have your ducks in a row and know what the laws are, so go to the irs.gov website and read up on Small Businesses if you're new to this and not sure what you should be doing to protect yourself in case of audits. (Biggest thing is keep all receipts and a log of your mileage.)

As far as I know, everything Dspeakes says about hobby income is correct. What Dspeakes learned sounds like the same thing I learned, and the advice sounds like some I've given, too.

For example, I once had joint return clients who enjoyed two large incomes from their regular jobs, and claimed a side business of barrel racing. The wife was the barrel racer, and the husband assisted in all the work involved in making barrel racing happen. Although the wife was an enthusiastic competitor, she was not really tops at her sport and rarely won any money at all. Expenses, however, were enormous. Several costly horses were bought and maintained, a large trailer and a large truck to pull it were bought and kept up, and of course we were seeing expenditures for vehicle operating expenses, entry fees, lodging, and special clothing. It's a good thing they both had wonderful jobs or they wouldn't have been able to afford their "business".

Losses from their "business" had been reducing their taxable income to a small number for several years. I gave them a headsup on the hobby issue because they needed to know they might lose the deduction of their "business" loss off their W2 income at any time, and they needed to be prepared to address that issue financially should it arise.

I can use my imagination and see where auditing/msing could be used in the same way. If I had a substantial regular income and wanted to reduce my tax liabilities, I could take weekend vacations, do a shop while there, and claim all the expenses. This would be similar to the barrel racing scenario, and might briefly fly. However, I don't think that's what most of us do. Some of us are working full time at this, but most of us are trying to pick up a few dollars here and there. In most cases, we don't pay much tax if we take all the legally allowed deductions. At the same time, if we're not doing the vacation scenario or something similar, we don't have large losses that will offset regular income.

It can never be to your advantage to report this as a "hobby" unless it is a "hobby". As long as you consider this as work and as a business, you should report it that way. I recommend that you don't get yourself into a situation where a loss from doing this is offsetting regular income, but that's just a personal preference and not tax advice.

After all legal deductions, my own personal MS business does not show enough profit to generate added income taxes. In my case, mystery shopping money is added to social security and a modest amount of income from small investments. I suspect that most of us are not adding our mystery shopping money to substantial W2 money, so it is not providing the type of offset the IRS would regard as suspicious. We all have to make our own business decisions and this is not tax advice, but odds are my little business will not be considered a hobby.

dspeakes is definately WRONG about the mileage deduction. We have along, long thread about that somewhere in this area, in which the IRS page-by-page and flow chart-by-flowcart shows that this interpretation is dead wrong. I have run several small businesses since 1972, have been audited and not found yto have done ANYTHING wrong, and follow IRS guidance on such matters very closely. Sorry, dspeakes is NOT correct.



Edited 1 time(s). Last edit at 10/16/2012 01:27PM by walesmaven.

"No regular place of work. If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site __outside__ that metropolitan area.
Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area.
You cannot deduct daily transportation costs between your home and temporary work sites __within__ your metropolitan area. These are nondeductible commuting expenses.

Two places of work. If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second."

The above is a direct quote from IRS pub 463, [www.irs.gov]


If someone here has information that exempts mystery shopping from this regulation, I would like to know what that information is. Walesmaven claims there is a thread here explaining it all. I'd like to see it. This is the reason why I said having a home office established removes all question of whether MS trips are 100% deductible or not. The above section clearly states that your trip to the FIRST location within your home town is NOT DEDUCTIBLE, but trips between work locations are deductible. Walesmaven has stated that I am wrong, but has failed to specify exactly what part of what I said might be incorrect.

So this is what the IRS has said about it; what is it you think is true that is different from what the IRS has said about it? Personally, when I have to answer a question for a client, I go to the IRS website and find the relevant publication. What am I missing here? I went to the publication (535) on Business deductions and it referred me to pub 463 for the details on what mileage was deductible. If there is some other publication that deals with this question I don't know what it is. Please feel free to enlighten me. I'm willing to learn something new, but I am not willing to have someone declare that I am wrong without offering some PROOF.

Sorry. No sale. The home office, where one writes, edits and submts reports, communicates with schedulers and editors, received faxes from clients, resizes photos, uploads video, invoices MSCs, is our regular place of work. ICs DO NOT have to have an office that meets the "home office deduction rules" in order to have a home office that is a "regular place of work." The "home" that your quote is referring to is the home of an EMPLOYEE, such as the utility company employee who takes his/her company truck home every day, is not required to be in a corporate office on any regular schedule, has not assigned office on company property, and is not maintaining a home office. WE ARE NOT EMPLOYEES.

No, the "home" in question can be that of a self-employed person, not just an employee, since the publication on business deductions refers to the pub I quoted from.

I will research further on why an undeducted "home office" qualifies. I've never run onto someone who legitimately was working from home and chose not to deduct it so the concept has never come up in my practice. A home office does not need to be a room or walled-off area, a desk can qualify. I have clients claiming a home office of 15 square feet -- but it qualifies.

On that basis, there is no conflict between what I said and what you claim because I SAID if you had a home office all the miles are deductible.

In the same pub I referenced before is this: "Example 2.

Your principal place of business is in your home. You can deduct the cost of round-trip transportation between your __qualifying___ home office and your client's or customer's place of business."


You may be right that a person could have a "home office" for purposes of mileage deductions but choose not to deduct expenses related to it. I can't seem to find anything saying that in the publications but I can see an argument could be made to support it. I would question the IRS's use of the word "qualifying" in the above paragraph, however, if the rules that "qualify" the home office for deduction are not being applied for purposes of the mileage deduction.


Contrary to your declaration a few posts back, NOTHING I said previously about deducting mileage was incorrect. The only question is if someone can have a home office for purposes of the mileage deduction without having to deduct the home office on the tax return. I'll do more research on the matter. It may come down to whether the office COULD qualify for deduction. The word "qualifying" is used throughout IRS publications and it is a clue to find the part where the qualifications are listed.

For example, they would refer to a "qualifying" child for the Earned Income Credit, and you'd need to find those rules because a qualifying child for EIC has different rules than a qualifying child for the dependent exemption, head of household status, or dependent care credit.

I've only seen one set of definitions for a "qualifying" home office but I will see if I can find another that would exempt the "regularly and exclusively" clause or the "defined area" clause for purposes of the business mileage deduction. Just because we work "from home" does not necessarily mean we have a "qualifying" home office.

Again, this comes down to the question of business versus hobby and presenting yourself to the IRS as a business person, not a hobbyist dabbling in this to make a few bucks or get some free fast food, in the event of an audit.



Edited 1 time(s). Last edit at 10/22/2012 05:58PM by dspeakes.

I have no W2 employment. I work from home and I do not choose to deduct expenses for a home office. My home is my regular place of work where I begin each work day and end each work day. Mileage and other allowable deductions reduce my mystery shopping income to a level below taxable, so I have no reason to deduct for a home office.

Should the IRS ever disallow a mileage deduction because I don't take deductions for the home office, I would file an amended return and claim it.

dspeakes,
So are you saying that virtually all mystery shoppers who do not also travel to an "away from home" office will, as I have stated, be able to deduct mileage from their home to their shop sites? If so, why all the posts from you about NOT being able to deduct mileage?

BTW, the term "qualifying" when applied to a home office, has to do with whether or not the person has any other locations that could be designated as their office, NOT having to do with whether or not the tax payer chooses to claim a home office expense deduction.

Please read back through this thread to find all of the references that you will need on this subject, all from the IRS flow charts and publications. It is only polite to read a thread to see what has been established, using IRS publications, before jumping in with a differing view. You will find posts by "Flash" on this subject to be very specific, chapter and verse, concerning mileable duduction rules. I do not intend to repeat what you have not bothered to read.

I also attended a seminar on taxes at the conference in Chicago. The presenter offered a variety of reasons someone would decide against claiming their home office and some were quite compelling. He also made it clear it was an apples and oranges kind of thing when it came to being an IC and claiming mileage from that same home office. I'm aware of nothing in the tax code requiring a taxpayer to take very available deduction. In fact there has been a well-publicized case of a taxpayer not taking every deduction to which they were entitled in order to keep their effective tax rate from dropping below 13%

You must file the Schedule C, just because the income must be declared, even if it is not, ultimately taxed. Besides, you may own self-employment tax on net Schedule C income, even if you do not owe income tax. Self-employment tax is what funds your Social Security account for your eventual retirement.

Actually, if you use Turbo Tax and have it walk you through all of thier questions, you will have just as good a result as if you had gone to a tax preparer, or even better. Many tax preparers, including some who have posted here in the past, get mileage deductions all wrong. Turbo Taxasks the right questions, to get you to the correct result.

Look for the version of Turbo Tax that shows support for Schedule C on the little chart that compares versions of the program.