Hi all,
This is the first year I've made enough money through mystery shopping that I need to file taxes. I've printed off the statements from all companies. Do you have any tips? Can I file online? Can I file with my husband? We hired an accountant a couple years ago after we bought our first house and it was a waste of money for what he did. We've filed online ourselves every year besides that.

Almost always, married filing joint makes the best financial sense. You can file online. If you and your husband's adjusted gross income was less than $56,000 in 2008, you can file free at the IRS website, and it has prompts to help you take everything you're entitled to. I think most States' department of revenues also are set up to lead you through your tax preparation. If your situation is complicated, and you and your husband are unsure, it may be best to bite the bullet and pay for preparation - software such as TurboTax, TaxCut, or at a tax prep office.

If you didn't file last year, you may be entitled to the stimulus payment from the IRS - you can get it this year, if you include it in your return.

I've been longtime friends with two CPAs. They both would agree with me when I say not only does a preparer not have to be a CPA, but CPAs charge more $$, and tax prep is not always their cup of tea.

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.

Thank you both for your fast reply... I'm pretty organized (thank gosh!) and have kept track of everything. I still feel a slight sense of disorganization though - I think it's just the tax time syndrome. Besides Quicken and Excel, how else do you stay organized throughout the year? I was keeping track of mileage on the computer, but found that I often forget to input it - do you keep a notebook in your car? Thanks again for the info.

Part of my ritual of getting out the door is to reset the trip mileage right after I turn on the ignition and before I fasten my seat belt. I make it a ritual to make sure I don't forget it. When I get home I put the vehicle in park, record the mileage on a shop sheet from what I have taken along that day and then turn off the vehicle, unbuckle and get myself and my stuff out and into the house.

My shop sheet includes noting the mileage, the time the shop was submitted and any additional costs incurred that would be deductible as well as adjusting the maximum reimbursement down if I spent less than required. I then automatically save the excel sheet because there has been a change to it. I find that anything I can make an automatic sequence of acts leads to fewer 'forgets'.

I generally put those touches to my shop sheet while my computer is scanning the receipts or stuff I need to upload and then I am ready to report the job. If there is a mailing in of receipts, the envelope is printed at the end of reporting the job and the original receipts and any invoice etc. stuffed in as well (with copies of course on my computer) and my shop sheet gets touched again to note the postage, date of invoice etc. and of course saved again because a change was made.

When the report is in, the paperwork I will retain goes in front of the month's file folder of job stuff (so the folder is always stacked most recent first). One of the shop sheets for that route will have the mileage written in it and circled. If I do 6 shops in a single run, the total mileage is listed with the first one only and the other 5 are coded in to link back to the job with the mileage.

If by any chance I forget to write down the mileage, when I am working on my spreadsheet I will go out and turn on the vehicle to get the mileage. With my average "run" being about 30 miles, that mileage deduction alone is worth around $15.

My method is primarily pen and paper. I have a 3 ring binder that goes with me on all shops. It has alpha dividers which list each MSP I'm registered with. One sheet for every MSP listing their website, date registered, date terminated and why, ID and password, scheduler email and phone nos., payment cycle/method, clients and notes.

In the front of my binder are the assignment logs. I record company, assignment type, date and location, amount contracted, amount/method/date paid, and mileage. This is where I'll have my guidelines and details for the shops I'm about to do. I do backup on the computer, but I favor the paper. I like leafing through and handwriting my thoughts, sometimes expletives, as well!

I keep mileage for every location I've ever been to. I also have mileage for shop routes that I regularly do. The only time I check my odometer is on new-to-me shops. I don't rely on Mapquest or TripTik entirely. Obviously, if I have to detour from my normal routes my mileage may be off, but, I'll take that into account.

At the the end of each month, I'll total $$ (earned/reimbursed/unreimbursed), and mileage. It's satisfying to be able to mark each month's payments and highlight the month when it's closed.

My binder also has pockets, which is where I keep the receipts until I get home and enter my report. The binder stays in the car and when I finish the shop, if it's do-able, I'll sit in the parking lot and make any notes.

While other shoppers find DVRs indispensable, I haven't yet bought one. They're pricey and I get along just fine without one. I do have a digital camera, but it was not purchased for mystery shopping. The number of shops I take that require photos would not justify its purchase.

My routes are never predictable enough to bother remembering the mileage. For example tomorrow I do a particular route but I have added on two one-time-only shops that will be out of the usual path. I use the mileage from Mapquest or Google Maps only when I have forgotten to note it or when part way through a trip I took a detour for a personal errand off the normal path.