Dave, you are allowed to deduct business expenses on your Schedule C. The scenarios you presented are more of the hobby nature. A business is expected to generate a profit. You can fail to make that profit, and you can deduct the loss against other income, but only if you were in it to make a profit, and trying to make a profit.

If you take a shop where you have to lay out more than you will receive in return -- where's the profit motive? Not saying there isn't one; I took a reimbursement-only dining shop to get in with the company and get experience with that kind of shop. We ran over about $10 (I didn't know I could use a coupon that would have prevented that) and I deducted the full tab against the reimbursement I got. But if you do it more than once or twice, the rationale for how doing that at a loss supports your profit motive falls apart.

What I do (since the company reimbursed me on the same check with the fee) is report every dime I get for mystery shopping as "income" and take the reimbursements on the line for "returns and allowances." I justify this because the money was "returned" to the company (in advance) before I was paid for it. It's also fine to ignore the reimbursement and what you laid out to get it. But this muddies the water if the MSC includes the reimbursement on the 1099. It's far easier to report all the income and deduct all the paid outs than to try to sort out which MSC included the reimbursement on the 1099 and which did not.

The net result is what the IRS cares about: you received $1000 and spent $150 to do so therefore you will pay tax on $850. How you arrive at the $850 is not as important as arriving at the correct net result and having the records to back it up.

Could someone who uses Excel please post a mock up of your spreadsheet? I'm at a loss on where to even begin. All of your suggestions have given so much food for thought, and I want to start 2015 off on the right note and keep things more organized and easier to handle next tax season. Thanks.

Vintage Treasure,

There is a spreadsheet available for download in the new shopper section. It's one of the threads at the top of the page.

Thanks Kim!!! Now I just need to remember how to use it! Can I just save this, use it & save the info, OR do I need to set up my own using this as a guide?

Yes, you can save it for yourself. I clicked on the link to try it and a message automatically came up asking me if I wanted to save it. I saved it to my desktop. There are some helpful boxes in there like "SEE THE OTHER SHEETS FOR ADDITIONAL IMPORTANT INFORMATION AND USAGE." You can click on it and delete it.

Depending on your filing status, you might want to file in order to claim EIC. EIC does not care if you make a profit, just that you had earned income.

iagal, unless you have a profit you don't have any earned income. It is not based on your gross revenues; only your net profit or loss from the Schedule C goes into the computation for EIC, not the gross revenues. And falsifying/not claiming your expenses to create a profit you really don't have just to get a bigger EIC can cause you to lose the EIC deduction for the year you do it and several years thereafter.

I know you were trying to be helpful, but please don't give tax advice here if you are not a tax professional (which I happen to be). And if you are a tax professional, please explain the details such as I just did so people don't take something you said out of context and try to apply it to their tax return.

While a lot of our advice leading up to tax preparation is solid, track your mileage & expenses for instance, nobody should be taking tax advice from an online forum. No offense to the tax preparers here, but each person's circumstances are too different and there is not a one-size-fits-all solution.

Which is primarily what all the tax preparers here tell people. It's the non-tax preparers who tend to make statements about tax law without explaining all the variations and exceptions that might apply.