My reimbursement for mileage is more than my compensation from the shops (not including reimburesment for expenses). Will I still owe taxes?

Do I need to seperate my shops from my husbands he only did a few?

Reimbursement? Do you mean the mileage deduction?

If your mileage deduction exceeds your shopping income you will not owe taxes, but if it turns into a huge loss, you may want to give some thought to whether you really should claim it all.

What I deducted on my own return (I'm a tax preparer myself) was what I called "additional" miles. I had a separate column for my "anyway" miles -- I was going there anyway so I wasn't actually out of pocket for the miles. If I was really going there for some personal purpose and only picked up shops on the way because I was going to be there any way, then I only counted the "additional" miles to get to the shop from my dad's place, or my vet's office, or the feed store, or whatever was my real reason for making the trip.

Sometimes I would do a few mystery shops because I was going to see my dad, and sometimes I would drop in on my dad while I was running a route of mystery shops. If the shops alone would not have gotten me there, I didn't count all the miles.

Using that approach, only claiming the miles I drove strictly because of shopping, I generated a small (under $300) profit for my first full year of part time mystery shopping. I deducted those miles, some equipment (scanner, travel laptop, recorders, paper), travel and fees for the seminar, background check to do BV's, and a few other odd items plus a home office deduction.

So you may want to do that evaluation --figure out what miles you drove just because of shopping and don't claim all the miles you drove that you were driving anyway.

If you're a new shopper, claiming every possible mile and putting yourself in a large loss position right out the gate might draw scrutiny that a small loss or even a small profit wouldn't.

The purpose of being in business should be to generate income, not losses. It's okay to claim a legitimate loss, but if you're going on a 100 mile trip for some personal reason and pick up a $5 shop so you can get a $50+ deduction for the mileage, you could be declared a hobby in short order and won't get to take any deductions at all from your shopping income (except the reimbursements).

If you're filing a joint return, you can add them together and put that the Schedule C is a "joint" operation.

Ok, thanks that is very helpful!

Do I need to include items I was reimbursed as income?

No. For lots of tax help, please go to the thread on taxes in the New Mystery Shoppers area of the forums. Many of your questions will be addressed there.

Enjoy!

Thanks!

It's better in case of an audit to have reported every penny you got from the MSCs as income, and reported what you paid (that you were reimbursed for) as a deduction. I use the "returns and allowances" line for this, since the money I spent was "returned" to the client in the form of the sale.

People get caught out on audits when they can't account for the deposits in their bank account. If you put all the money you got as income, your bank account will back up the fact that you did report all your income. If you get a check for $25.15 and only $15 shows up as income . . . you're going to have a lot more hoops to jump through than if you put the whole $25.15 on the income line and showed the $10.15 reimbursed purchase as a deduction.

And since some companies include the reimbursement on the 1099, doing it this way allows you to use one method for accounting for all companies instead of having to do different things for different companies.

It still works out that you don't pay taxes on the reimbursements, but reporting it this way will keep you a lot cleaner in an audit.

(I'm reposting from another thread so I can get more traffic)

Hey guys, I've been reading through Flash's long thread in "New Shoppers" and various other threads and I don't see anything that specifically addresses my particular question (feel free to point me in the correct direction):

If you do a dining shop, and it has a $150 reimbursement, but you spend more than that, can you deduct 50% of the overage or all of it or any of it as a business expense? I've been reading through this [www.irs.gov], and it seems murky. And of course, there's nothing that fits our situation exactly, but if I'm doing a dining shop, I am literally doing business the whole time and someone's there with me. Let's add to this senario that it is difficult to come in under or at the reimbursement given the ordering requirements (but even if that's not true, could you deduct some of that overage expense?)

Anyway, what does everyone else do?

I'm sure someone with more knowledge will eventually weigh in. In my mind, if you can fulfill the requirements within the reimbursement, regardless of how difficult that may be, any overage would not be deductible. OTOH, if by choosing the least expensive option of every required item would still make it impossible to come in at $150 or under, that may be a different story. Let me ask you this, did the shop require the number of diners you had or could it have been completed by a solo diner?

Where I live, with this restaurant, if you ordered the least expensive options, you'd still end up spending $223 total at dinner. And it's a two person meal. So this I could deduct as a straight business expense, right? But what about general overage?

Let someone who is more familiar answer that question. Flash does a lot of dining shops and IMHO is the best source.

I bow down to Flash's knowledge.

You and me both

shopsuey Wrote:
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> Where I live, with this restaurant, if you ordered
> the least expensive options, you'd still end up
> spending $223 total at dinner. And it's a two
> person meal. So this I could deduct as a straight
> business expense, right? But what about general
> overage?

If what you are REQUIRED to purchase to adequately complete the shop exceeds the reimbursement then the difference between the minimum you could have spent and the reimbursement amount would be a reasonable business expense. But I would not do that shop again because supposedly you are operating a business for profit. If, however, you could have met the requirements within the reimbursement, then there would be no additional business expense, regardless of how much you spent.

To determine how cheaply you could get out, make sure you look at everything you were required to purchase and what you actually did purchase. We do some that say we must order an appetizer to share, different entrees and a dessert to share. We generally buy beverages (not required), an appetizer that is $1 more than the cheapest, we don't order the two cheapest entrees on the menu and we don't usually buy the cheapest dessert to share. If we go over, it is on our dime.

Thanks, Flash!

taxes are not an exact science and never will be unless they
charge a flat percentage and no deductions.

If we gave the exact same information to 5 different people
each person could arrive at different profit/loss amounts
and all 5 would be acceptable to the taxman.

Tax court has allowed some of the strangest deductions
which most would think never would be allowed.
Always an interesting read to see the latest stuff
they allow and disallow.

Yeah, I feel like there would be wiggle room on all of this, but I respect my elders' wisdom.

Certainly the concepts of "reasonableness" and "fairness" do come into play both with the IRS and with Tax Court. I think it is pretty well accepted that a merchant or small business does not make a profit on every single transaction, but that brings into play the notion of "once burned, learn".

If you were running a plumbing business and went out to do a job you had quoted $175 on and while performing it you inadvertently busted stuff such that the supplies alone cost you $200, which you really couldn't pass along because it was your own fault, your expenses would be more than your revenue. If you did that over and over and over again I suspect there would be raised eyebrows at IRS about the seriousness of your business. Certainly you are welcome to underbid other contractors in anticipation of future work, but I suspect you would need to show that some of those gambles paid off.

Over the years I have done a few restaurants that amounted to nothing more than a glorified coupon because I did not do my homework on the internet to find menus and prices or because prices were not available on the internet or because I did not get to see the specific requirements prior to accepting the job. If I am at fault for not doing my homework, it is my responsibility and I will not claim any over reimbursement expense. But I will not darken their doorway again. If I diligently tried to find pricing before accepting the work or was hit with unexpected purchase requirements, I will deduct the difference between the lowest amount I could have gotten out for and the amount of reimbursement and reconsider my relationship with the MSP. I don't expect to make a profit on every single job, but I don't want to make a habit of digging into my own pocket. But if I go into a restaurant on a shop and my guest and I order higher price items on the menu or items beyond requirements and go over budget there is no reason why other taxpayers should be paying for our excesses.

Here's another question. From the standpoint of the IRS, how can a 'reimbursement only' dinner be explained as part of a business? How do we fit it into our business plan?

We can't be doing it in the hope of making money. We know up front that we'll not be getting any money. So, aren't we indulging in barter--trading a report for a meal? And, in that case, doesn't the IRS consider that barter is taxable?

Didn't we discuss that with you before fairly recently? [www.mysteryshopforum.com]

Flash Wrote:
-------------------------------------------------------
> Didn't we discuss that with you before fairly
> recently?
> [www.mysteryshopforum.com]
> 80#msg-304080

Thank you. I'll confess that I'd forgotten that you were the one who answered it. I'm sorry I put you to the trouble of digging out the link.

Obviously you are not comfortable with the response so let me encourage you to read the irs.gov site and see of the barter seems to fit to you and/or talk to your tax professional. What YOU claim on YOUR tax return needs to be something YOU feel comfortable defending the propriety of.

Flash Wrote:
-------------------------------------------------------
> Obviously you are not comfortable with the
> response so let me encourage you to read the
> irs.gov site and see of the barter seems to fit to
> you and/or talk to your tax professional. What
> YOU claim on YOUR tax return needs to be something
> YOU feel comfortable defending the propriety of.

That's a good point. I don't have any mystery shopping money to report for this year, so I have a whole year to study, and think about things.

Ishmael, I'm a tax preparer and struggled with that question, but it can be justified on the basis that you were getting experience for better-paying shops, or building a relationship with that MSC. That's how it works into your business plan.

But I frankly would not be comfortable doing more than one or two reimbursement-only shops for the same company because then you're just getting a free meal and/or it's looking a lot like barter.

I think the IRS would look at it as, okay, so you got a free meal, fine with that, but what's this business of deducting 40 miles to get to it?

So . . . I'm thinking that while it may be possible to justify the free meal in exchange for the report as being necessary for your business plan, also deducting mileage may not be so easily justified because it takes a break-even scenario and turns it into a tax dodge.

Making a point not to deduct mileage for reimbursement-only shops would indicate to an auditor that you were being reasonable about it.

I guess it depends on how many shops you do each year. A couple of reimbursement-only shops among several hundred fee shops is insignificant. If you only do four shops a month -- taking expenses off a bunch of breakeven shops will probably get you classified as a hobbyist in short order because you're taking things that will guarantee you a loss. No profit motive, therefore not a business, therefore no deducting a loss on it.

Unfortunately the thought that jobs need to be made break even or profitable to justify expenses means that the majority of fast food, grocery and other shops that have some sort of reimbursement would need to be thrown to the wind because a $10 fee on a 20 mile round trip already equates to a loss.

Thus the IRS's skepticism that a shopper doing that all the time is seriously trying to make a profit.

Although, there is slack cut if the only cause of the loss is the full mileage deduction, since that far exceeds the actual out of pocket. I believe the charitable mileage deduction of 14 (I think) cents per mile is closer to the estimated out of pocket figure.

If you're clearing the actual expense, even if not the allowable expense, it's consistent with a profit motive even if it doesn't actually create a taxable profit.

When you consider that the 56.5 cents applies to people driving gas guzzlers and Priuses alike, there's a lot of wiggle room in the interpretation.

I posted about a $400 profit to my tax return but estimate a $3500 return to my pocket for 2013.

And my point had to do with deducting expenses against a solo breakeven shop (throwing some in on a route, no problem). With any fee at all attaching to the shop, there is cash flow. With no fee at all, the shopper has set out on a guaranteed losing proposition -- not consistent with a profit motive.

The problem is we have shoppers on this board who are serious about making at least part of their living by shopping and there are people who are shopping primarily to get free stuff. There are different tax consequences; this is not a one-size-fits-all situation by any means. And you can put anything you want on a tax return and likely get away with it -- unless you get audited.

If you want to conduct yourself in such a way as to make yourself audit proof, you have to pay attention to these kinds of details. The IRS takes a dim view of people who call themselves a business when they really are not, just so they can deduct losses on their tax return.

So enjoy the free meals, but don't try to turn them into a tax dodge.

My point of view is that of a serious shopper and someone who has been self-employed for over 15 years -- as a tax preparer. I've taken classes in taxation and read auditor guidelines for one of the industries I'm involved in (livestock production, an area that is heavily audited because of the abuses) and I'm on the IRS's mailing list for bulletins every week. And with all that background there's a heck of a lot I don't know, just because the tax law is so complex. Everyone should go to the IRS website and do some clicking around and studying about being a small business and how and when deductions are allowed and what are the rules for mileage and meal deductions and home offices and then apply them to your own situation. Don't listen to what anyone here tells you, including me, until you have verified for yourself that the advice given applies to your situation.

I don't want to be responsible for you doing something wrong and getting nailed on an audit because you took something I said and ran with it without considering if it really applied to your circumstances.

If my actual vehicle costs were closer to 14 cents a mile, I would be one happy camper.

That's why this isn't a one size fits all situation.

That's just a gas figure -- $3.50 per gallon at 25 mpg is 14 cents a mile. Most of the costs of owning a car you have whether you drive it or not -- insurance, depreciation, even tires and wiper blades deteriorate with time regardless of mileage. A windshield gets cracked randomly, not related to mileage, only bad luck. Oil changes are needed because the oil breaks down even if you don't drive. Cars get dirty sitting in a carport and need washing and waxing even if you don't drive. All those costs are built into the 56.5 cents per mile figure. But the out of pocket for a given trip for the average car is about 14 cents a mile. Your mileage may vary, so your cost may vary.

The IRS gives us the option to use their figures which are based on national averages or your actual costs.

I drive a hybrid, which costs me less in gas but more in depreciation because I paid more for the hybrid than I would have for a non-hybrid. When I'm figuring out of pocket costs to decide the profitability of a route, I can use a lower figure, but the IRS lets me use their figures for my deductions.

My tires, brakes, suspension, etc all need to be replaced based on how far I drive. I estimate my *actual* cost of driving my car at about $.25 a mile. That based on how many miles I get out of tires, brakes, gas, random parts, and a per mile cost based on how many more miles I can get on my car until it's basically worthless.