Regarding un-reimbursed expenses for Schedule C:

If you are paid a fee only and the restaurant meal, taxes and tip exceed the fee received, do you claim all the dollar amount exceeding the fee as an expense of the shop? Or, in another version of the same scenario, a shop paying $8.00 to buy yogurt and toppings with the $8.00 largely being "eaten up" (- Pun Intended -) by the purchase of the required yogurt treat, leave you with a completely reimbursed expense and, say, $2.00 remaining of the $8.00 to be considered the fee. And, is this distinction to be made dependent upon the wording of the shop offer and what terminology the mystery shopping company used to describe or categorize the compensation.

For a shop such as Aveda (when the compensation may be less than the required purchase), is the entire compensation assumed to be a partial reimbursement, or can some portion of it be assumed to be payment for the time involved in doing the shop and then filing the report?

There are many threads explaining how to do this. I am not an expert but what I gather from other lengthy posts is that you can deduct the overage you spent on a meal only if you were not able to order the required items without going over. So, for instance, if you could have ordered the least expensive pasta dish but ordered the chicken for a few dollars more which put you over the reimbursement then you cannot deduct the difference. Same goes for drinks. If you were able to order a cup of tea and a soda to fit a requirement for 2 drinks but you had 2 glasses of wine for more money and went over then it is out of your pocket, not the IRS.
There is also another post saying that if you get only reimbursement for a job and no fee it is not considered a job by the IRS. That post poses the idea that you can only claim expenses for jobs when you are actually earning some money but also seems to say that you might get by with trying out a restaurant for reimbursement only once in order to try out a new msc for your business endeavor. I have not checked to see if any of this advice is true so you have to do your own due diligence by reading the IRS rules and all the IRS posts but hopefully these ideas will get you started to try to understand the IRS rules.
The Aveda shop does go over the maximum since they do not allow you to take tax into account (or so they have told me) so in order to meet the $ minimum spend if you live in an area with sales tax you are immediately over. You could however put together a bunch of smaller items you probably do not want to buy to get to their minimum exactly if you live in a non tax area. In this case you would not be able to deduct the excess based on what I have read except perhaps the tax amt but then if there is no paid fee or bonus for the shop you run into the other idea of it not being a business if you do not earn any money.
So read all the tax posts and do not consider any of them the truth until you check what they say out for yourself by using the info to help you interpret the rules.

Please discuss this with a tax professional. None of this is cut and dried.

Keep in mind, the IRS expects you to have a profit motive -- you are in business trying to earn taxable income, not generate deductible losses.

If you are doing a reimbursement-only shop, or one where the fee represents only a partial reimbursement -- where is the profit motive?

This is actually very straightforward. For reimbursement-only shops, the entire reimbursement must be treated as ordinary taxable income. Doing otherwise is straight-up fraud. There is no way to rationalize any other way of treating this sort of cash flow.

And your source for that statement would be????

Actually, there is another perfectly acceptable solution -- treat the cost of the meal as a business "meal and entertainment" deduction, which results in half of the entire dinner tab becoming a deduction against the fee received.

Which makes only half or less of the fee received taxable.

So I ask again -- what is your source, migrants, for your statement that doing anything other than paying tax on the whole fee is tax fraud?

Another argument is that the purchase made was an investment in learning to do that kind of shop, or getting a foot in the door with that MSC, making it a business deduction.

As I said, these situations are *not* cut and dried at all, and OP should consult with their own tax professional about how to treat these situations.

As a former tax preparer meals were always deductible as business related costs. Taking a client out to dinner to promote or secure a sale, perfectly acceptable as long as you weren't reimbursed. Road Warriors writing off meals because of their routes acceptable, but the IRS has daily limits. You also need records to back up road trip meals.

Shopping a restaurant and only getting reimbursed, iffy. I, personally would consider it income. If I was still in the business of preparing taxes I would advise you to take it as income.

You need to remember that even if your 1099 doesn't state the reimbursed income, it's not necessarily a write off. I earned well over $6,000 last year from one particular project. My 1099, says less than 2 grand. This means the company took my reimbursements and my gas bonuses for their own tax deductions. I can't claim that income or the mileage. This is why as much of a huge PITA, you think spreadsheets are & can be...IS WHY YOU NEED TO SET THEM UP AND FILL THEM OUT on a regular basis. It's also why you need to get yourself in the habit of always asking for a receipt for work or personal expenditures.

Sorry I yelled.

I agree the fee you get goes in the income column always; the question is the degree to which the outlay is a deduction -- all the meal, half the meal, the minimum required to be purchased by the client, or only up to the amount you received.

And the other question is whether the mileage to get there is deductible or not and that is where I would recommend drawing the line. If there was no chance of making a profit, at the very least you should not turn the job into a deductible loss.

But each person should make the decision how to handle these things either in discussion with their tax professional or after doing their own reading on the irs.gov website and making their own decision based on what they read. Nobody should be taking anyone's tax advice from this forum because nobody here knows anyone else's entire tax situation. A lot of the tax code has to do with your intentions and "all facts and circumstances" and two people doing the exact same thing for different reasons will have two different outcomes on their tax returns.

(This post originally duplicated the above post for reasons I do not understand; it should be impossible to double post because the system normally won't let you.)



Edited 1 time(s). Last edit at 02/15/2015 10:29PM by dspeakes.

@dspeakes wrote:

I agree the fee you get goes in the income column always; the question is the degree to which the outlay is a deduction -- all the meal, half the meal, the minimum required to be purchased by the client, or only up to the amount you received.

And the other question is whether the mileage to get there is deductible or not and that is where I would recommend drawing the line. If there was no chance of making a profit, at the very least you should not turn the job into a deductible loss.

But each person should make the decision how to handle these things either in discussion with their tax professional or after doing their own reading on the irs.gov website and making their own decision based on what they read. Nobody should be taking anyone's tax advice from this forum because nobody here knows anyone else's entire tax situation. A lot of the tax code has to do with your intentions and "all facts and circumstances" and two people doing the exact same thing for different reasons will have two different outcomes on their tax returns.

I understood the question to be that the only reimbursement was for the meal. That scenario was always pure income when I prepared taxes. Mileage getting there can definitely be a tax deduction.

My recommendation to anyone is find a tax professional. The pennies you might save now are not worth the massive amount of dollars you can pay in the future. The IRS says we only need to keep records for three years. What they don't tell you is they can go back for years and years. I was hit with an ex husbands BS, until I produced my divorce documents that specifically stated I was not ever liable for his financial issues. Fixing that issue took 2 additional years after we were divorced. The IRS had been hunting him for 16 years and I came very close to footing the bill.

Find a tax professional.

If I sign up for a job in which the outlay will exceed the income, I cannot possibly have a financial profit motive. In the case of a fine dining shop with no fee or minimal fee, the obvious "reward" is the meal. Therefore, the income is the meal. Logic would say all of it is income, less mileage to get there.

However, logic is not written into the IRS rules. If you're not willing to research at IRS.gov and make a decision on your own, get a tax professional. This is not the place to figure out debatable tax issues.

@MDavisnowell wrote:

If I sign up for a job in which the outlay will exceed the income, I cannot possibly have a financial profit motive. In the case of a fine dining shop with no fee or minimal fee, the obvious "reward" is the meal. Therefore, the income is the meal. Logic would say all of it is income, less mileage to get there.

However, logic is not written into the IRS rules. If you're not willing to research at IRS.gov and make a decision on your own, get a tax professional. This is not the place to figure out debatable tax issues.

From here down is from sandyf
My form of logic, that is the logic that is in my head and not the logic that the irs might use, says that if I do a high end restaurant for reimbursement only I am using after tax dollars to purchase the meal. So if I have to pay taxes on the full price of the meal as if this was my "pay" then I am being double taxed. The middle class in my state pays 25% to the IRS, 9% to the state income and 9.5% sales tax so for a rounded $100 meal, I am paying out of pocket using post tax money so lets say I worked for $165 originally and after tax I had the $100 to spend on this meal. I buy the meal, get reimbursed and now I have to pay taxes on the $100 reimbursement I got so now I am taxed another $40-45 on that money. Wow, after reading what I just wrote I think I should move! If mystery shopping is your second income then you are paying taxes at your personal highest tax rate for the additional amt you are earning. And the IRS and FTB gets tax again from the restaurant on that same money. I am not sure why the government is running out of money if this is truly how the tax code works.
Someone please knock down my logic on this as I really hope I am not eating my way to the poorhouse. If those who say I cannot deduct anything for doing a mystery shop, not even the reimbursement, then what about my time, my gas, my paper and ink and computer and camera etc.? If all I ever did was reimbursement shops then I could not even claim those types of costs to me of doing business.
Can I pay the IRS by sending them a steak or maybe a whole order from Omaha Steaks, precooked of course? That would make sense to me under this scenario.

You are 100% correct that you are paying with after tax dollars. If you are taxed on the value of the meal you will be taxed twice. That makes sense.

What doesn't make sense is taking a job (contract) on which there is no expected net income. If the financial arrangement is reimbursement only, and we say the reimbursement is not income, then we had zero expectation of income from taking the contract. In that case, there would actually be no intent to realize a profit and no profit motive could be proved. Therefore, since no profit motive ever existed in the first place, the job (contract) may not qualify as being a job intended to generate income. The same argument might hold true (or not) for a job with very low fee and high reimbursement which could therefore not possibly generate net income on its own apart from other jobs.

I believe it is questionable what is income on a low fee or no fee shop with a large reimbursement, such as fine dining. I certainly have no answer to the questions about what is reportable income and what is not reportable income. At the present, I understand (could be wrong) that most shoppers report their fees and reimbursements as total income and then back out the reimbursements as a business expense. This is what lots of us do, but it may prove to be in error if the right auditor takes a hard look during the right audit.

I'm certainly not suggesting anyone change the way they account for fees/reimbursements based on my thinking. What this amounts to is one more opinion which may or may not have any relationship to facts.

I let my CPA figure it out.

This all makes me really glad I don't take reimbursement only shops

There is also a category of reimbursement only shops that MSCs use as a gateway to their higher fee/value shops.

@walesmaven wrote:

There is also a category of reimbursement only shops that MSCs use as a gateway to their higher fee/value shops.

Exactly. This is why the "intent" is a key component (in many areas of the tax code) in determining whether something is or is not deductible.

And this is why we all need to discuss this with a tax professional because if they are worth their salt at all, they should understand the options and know what questions to ask you (the same questions the IRS auditor will ask you) to determined your "intent" and know how to treat the situation. If you have a tax preparer who asks you how you want to treat the situation and doesn't know what questions to ask ... they probably got their only training from that woefully inadequate H&R Block class that anyone can take and that does not generate properly trained tax preparers. It's a class in filling out forms, and has little to do with understanding the tax code.

Reimbursement-only and "inadequate reimbursement" shops are a very different animal than the kind of shops most of us do most of the time. The one reimbursement only shop I did was for two purposes -- one, to give me experience in dining shops to decide if I wanted to pursue them (I decided I didn't), and two, to get my foot in the door with an MSC that I hoped would lead to more lucrative shops (that really didn't happen either).

I do not do them because I "want a nice dinner with the hubby" -- which could get into the area of bartering income.

I would consult a tax pro about this... with Canadian taxes, the answer is clear but I honestly wouldn't risk anything with the IRS. If you are not sure, go talk with someone. Not just anyone, someone who is reputable and has experience doing self-proprietor/business taxes.