You are correct that you are REQUIRED to report any and all INCOME but reimbursements are not considered to be INCOME. If you have a salaried job and the boss reimburses you for picking up coffee and a birthday cake for a co-worker on your way in to work, that is not reported to you on your W-2 at the end of the year. Some businesses will report on a W-2 reimbursements for educational expenses, but they are as part of the information on the form, not as part of your overall income subject to social security and withholding. The same holds true of your Schedule C mystery shopping. Reimbursements are NOT taxable INCOME and as such do not need to be claimed as INCOME.
As a matter of policy, I prefer to include them in income and subtract them out because a larger top line looks like more of a business and then in the 'other expenses' area I can subtract them out again. I have never found anything on the IRS website that would indicate that this method is any better than never including them in the first place, which is definitely an option.
For me the logic is "IRS can see deposits coming into my bank account. They include direct deposits, transfers from PayPal and deposited checks. IRS will obviously know the source of my SS direct deposit every month, but all other receipts into the account I could be asked to account for." (I use a different account that shows pictures of all deposited checks to deposit rebate checks, birthday checks, reimbursements from family members and such.) So all deposits to my bank account less SS will pretty much match to the penny what I claim as income and I have receipts that support how much of that is reimbursement which I subtract out in the 'other expenses' area.
