Casual dining,taxes and schedule C

I'm doing my taxes as self employed. I already have a schedule C worksheet for Form 1040 for my sales on eBay. I need to report more income, I have 2 children. I worked for 5 mystery shop companies. None of them sent me a tax form because I didn't make more than $600 with each of them. But I want to report my earnings with them. When I'm paid let say, $5 fee and $20 for a casual restaurant, should I report only $5 as income, or $25 as income? I hope that it's $25.

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I am sure that dspeakes will respond also. But the simple answer is that you report $25 as income, and then $20 as a business expense in as much as reimbursements are almost always not taxable income.

BTW, why do you want to have more income on which to pay taxes?

Shopping Southeast Pennsylvania, Delaware above the canal, and southwestern NJ since 2008
you can probably report the total amount (commission plus reimbursement-$25) as income and then deduct the business expense (the meal reimbursement)...but you can't just list $5 as income and then list a $20 business expense...this is the most accurate as you list all cash coming in...and then deduct what wasn't actually profit

or just report the actual commission and not list the reimbursement anywhere...which can be questioned if you are audited....and IRS won't be very happy with you

Edited 1 time(s). Last edit at 02/24/2015 03:14AM by jmitw.
You report every dime that crossed your palm as gross receipts, whether on a 1099 or not. You deduct every dime you paid out that was reimbursed as part of the payments that went into the gross receipts figure. You should end up with the figure that equals the total of the fees and bonuses.

(You got $100 in fees plus $50 in reimbursements. Report $150 as gross receipts, deduct the $50 from that, to end up with gross income of $100. Then you deduct your mileage and other expenses from that figure.)

Your mileage can be a little squishy if you need to report more or less net income. For instance, if you did a shop on the way to the grocery store ... you can take the mileage to the shop and back if you need more deductions, or you can ignore the mileage completely and not deduct it because you were going there anyway. You can figure up the actual expenses for the vehicle use or take the standard mileage rate. If you use actual expenses, take only straight-line depreciation on the car, not any of the accelerated methods, to enable you to keep the option to use either standard mileage or actual expenses.

And if you have no idea what I just said ... get an experienced tax preparer to help you.

I know what you are trying to do. You are trying to increase the Earned Income Credit by showing more income. But one of the questions on the Earned income checklist is whether you *reported all your business expenses.*

in the specific example you gave, the IRS probably will count you virtuous if you consider the meal you got to be bartering income and take the whole $25 as income and don't deduct what you paid for the meal (because you benefited from it by not having to make hot dogs for dinner that night). If that is the case, I would report it separately as "bartering income;" deduct your paid-out up front, then add it back on a separate line as bartering income. That way you are treating all your paid outs the same, and then selectively adding back in the ones where you gained a benefit.

(You got $100 in fees plus $50 in reimbursements, $25 of which truly benefited you (keep in mind, you didn't benefit from your guest's meal), and was the reason you did the shop. Report $150 as gross receipts, deduct the $50 from that, to end up with gross income of $100. Then you deduct your mileage and other expenses from that figure. But add a line for "bartering income" and put $25 on that line. It will increase your net income from shopping, which is the final figure that helps you get the EIC.)

But you need to be consistent in how you handle these things. there are a lot of other things you get reimbursed for that are *not* of value to you. Example, I did a shop where I had to buy a membership at a flooring club store. I was reimbursed for the membership. But i was also told I didn't get to "keep" the membership, i.e., I couldn't use the membership to buy flooring with. So if you did a shop like that, it would be incorrect to count that reimbursed amount as "bartering income" because you don't benefit from it. There are reimbursement shops where you mail the item back to the client; obviously you didn't benefit from that.

And consider that you may "peak" the EIC and end up coming down the other side of it at some point. in that case, your motivation is to show less income, to stay at the "peak." Your odds of getting audited are slim. But if you game the system by maximizing your income when it benefits you, and then change how you report things when the benefit goes the other direction, you can be blocked from claiming the EIC for some number of years, maybe forever.

Which is why I suggest showing the bartering income on a separate line. That way your bookkeeping does not change regarding how you report your income and reimbursements -- you just decide you're not benefiting from all those fattening dinner shops, you're only taking a few bites, it wasn't worth $50 to you, but only the $5 it saved you by not eating at home, there are a lot of ways to approach this situation. But don't make this up after the fact. Decide why you're doing the shop before you do the shop, and do your bookkeeping accordingly.

And get someone to help you with this. Do not try to fill out your tax return based on what i said here. I do not know your full situation. Copy what I wrote here and email it to yourself, then take it to your tax preparer who knows your full tax situation and ask them if any of it can help you.

This probably has confused you mightily; but a qualified and experienced tax preparer will understand the concepts underlying my comments and will know what it means to you specifically.

Time to build a bigger bridge.
I want to have more income because when you make less than $13,00 a year, the more income you have, the more credit you have. I don't have a regular job with salary, because my wife was in prison in a remote state for 11 months, and now, she is in probation in that state, so I have to take care alone of my 2 daughters (2 and half, and 4 years old) since 1 year and 2 months now. My wife didn't pay child support to her first husband. I'm divorcing and my parents are planning to move from France to USA to help me so I can restart my career. Crazy story.
Wow. Sorry you're going through all that -- just be sure you don't get crossways with the IRS over this. sounds like you have enough problems.

God bless you for being there for your daughters.

I hope you are getting food stamps, housing assistance, cell phone and internet assistance and everything else because single parents with kids have a lot of assistance available that people without kids don't have access to. A lot of people take advantage of these programs fraudulently, but your kind of situation is what they were meant for. so get all the help you can.

Time to build a bigger bridge.
Thank you very much for your understanding. I didn't know that there was special aid for single parents. I have food stamps and cell phone assistance, but I never heard about housing assistance and internet assistance. Do you have a web link for that?
Internet would depend on where you live, it's for people who live where there is no wired internet access and all they have is expensive satellite. I don't know where you'd go to find assistance. The housing thing is called Section 8 -- google that with the name of your city or state and probably you'll find how to apply.

Maybe ... call the Salvation Army or Red Cross and ask if they know who handles public assistance in your area? I've been fortunate enough never to need it, but I know such things exist. I have clients who rent homes to Section 8 recipients -- the tenants pay part of the rent and the government pays the rest. The landlord gets paid directly from the government.

Time to build a bigger bridge.
And there's also your generic run of the mill welfare, too. Single mothers get it all the time; single fathers of such young children as you have should get it too, I would think.

Time to build a bigger bridge.
if you want to talk govt programs, be informed.
He can get SNAP (Supplemental Nutritional Assistance Program), which used to be called food stamps. If he is not a citizen, he would only receive the monthly allottment for the children.
If he has citizenship or work authorization and wants to register to look for work, he could be eligible for TANF - Temporary Assistance for Needy Families. There is a limit of 48 months of eligibility for this program.
MiamiPairs, if you have questions, feel free to PM me, as I worked for the welfare system.
The "generic run of the mill welfare" I referred to is the welfare program supported by the Federal government that is what people mean when they talk about "going on welfare." Any public assistance is a form of welfare, including section 8 and free cell phones. But when people get "welfare payments" which is actual money given to people to help them out, it goes through the Federal programs.

The link I provided gives those definitions lascanas72 listed above.

Thanks for offering to help Miamiparis get the help he needs. I never claimed expertise in the programs; I'm a tax preparer. I shouldn't have to go learn a whole new trade just to encourage someone to apply for government aid. But I'm glad you can help him with this. All I could do was let him know such things exist.

Time to build a bigger bridge.
I am a retired Enrolled Agent with over 30 years of tax preparation and IRS audit experience, as well as teaching tax Continuing Education to other tax professionals. I respectfully disagree with the advice given above.

Reimbursements for expenses incurred performing a shop with a fee paid are not taxable and therefore should not be included in gross income on Schedule C nor on a 1099-Misc issued by an MSC. In the information below from an IRS publication, it states that reimbursements are included in income IF you do NOT account to your client for these expenses. I don't know of any MSC who is going to reimburse you without submitting your expenses. Therefore, since you did account for the expenses to your client (the MSC), the reimbursement is NOT included in income.

In some cities or counties, the amount of your business license is based on gross income, not net. Therefore, you would definitely not want to include reimbursements in gross income.

Also including reimbursements in gross income and then deducting them as returns and allowances as discussed in another thread on taxes is an incorrect handling of the situation. The IRS clearly defines returns and allowances and reimbursements are not part of that. A sales return is a cash or credit refund you gave to customers who returned defective, damaged, or unwanted products. A sales allowance is a reduction in the selling price of products, instead of a cash or credit refund.

As far as needing to match bank deposits with gross income in the case of an audit, your accounting records should clearly list the reimbursements and the fees paid for the job. Totaling those two amounts should equal your bank deposits and that should satisfy any reasonable IRS auditor.

Manipulating income to generate a higher earned income credit can be considered fraud.

***From IRS publication -

Rules for Independent Contractors and Clients
This section provides rules for independent contractors who incur expenses on behalf of a client or customer. The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers.

You are considered an independent contractor if you are self-employed and you perform services for a customer or client.

Accounting to Your Client
If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. You must keep adequate records of these expenses whether or not you account to your client for these expenses.

If you do not separately account for and seek reimbursement for meals and entertainment in connection with providing services for a client, you are subject to the 50% limit on those expenses.
You're working on the assumption every MSC separates expenses from income. One I work with on a regular basis requires receipts for my hotels and meals because they reimburse me for all travel expenses. They also told me up front all money paid to me, fees and reimbursements, would be included on my 1099.

Equal rights for others does not mean fewer rights for you. It's not pie.
"I prefer someone who burns the flag and then wraps themselves up in the Constitution over someone who burns the Constitution and then wraps themselves up in the flag." -Molly Ivins
Never try to teach a pig to sing. It's a waste of your time and it really annoys the pig.
JoR, thank you for your comments.

I get a five figure 1099 that includes shop/auditing fees and all reimbursements. If I report fees only I will be reporting less income that the total on the 1099.

I need some method when I'm doing my return to back out the reimbursements so they're not reflected as part of net income. I understand that you are saying we should report the fees only. How do we handle the reimbursements if we do not deduct them as an expense?

Mary Davis Nowell. Based close to Fort Worth. Shopping Interstate 20 east and west, Interstate 35 north and south.
If prepared following IRS guidelines, the 1099 MISC for an independent contractor should not include reimbursements accounted for to the client.

I understand that sometimes this is not the case. If the 1099 MISC received includes the reimbursements, you can request a corrected form from the MSC. If their policy has been established to report the reimbursements for whatever reason, this will probably be useless. In this case, you would have no choice but to include the entire amount from Box 7 of the 1099 MISC on your Schedule C and then deduct your expenses. Unfortunately that creates a debatable issue regarding the 50% limit for meal deductions which is often what the reimbursement is for many mystery shoppers.

Mary Davis Nowell. Based close to Fort Worth. Shopping Interstate 20 east and west, Interstate 35 north and south.
My last comment about 50% limit for meals may create conversation, so I am adding this from an earlier post I wrote.

From IRS Publication 463:

Self-employed. If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met.

•You have these expenses as an independent contractor.

•Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform.

•You provide adequate records of these expenses to your customer or client.
In this case, your client or customer is subject to the 50% limit on the expenses.

Many of the reimbursement-only meal shops require the presence of a guest so this should apply to their meal as well.
It seems to me treating our income and expenses consistently would cause less problems than trying to apply different formulas for different companies. And then we have all the companies where the shopper doesn't earn enough to generate a 1099. We don't know how the company reported the monies to the IRS.

Equal rights for others does not mean fewer rights for you. It's not pie.
"I prefer someone who burns the flag and then wraps themselves up in the Constitution over someone who burns the Constitution and then wraps themselves up in the flag." -Molly Ivins
Never try to teach a pig to sing. It's a waste of your time and it really annoys the pig.
JoR, I think you are failing to recognize the difference between Gross Receipts (the total money you got from the client or clients) and Gross Income (which is Revenue minus adjustments and returns and minus cost of good sold). This is the figure from which you deduct your expenses -- mileage, license fees, office expenses, depreciation.

Income provides you a benefit that is taxable. Receipts may not. Someone who only does reimbursement-only shops may have lots of receipts, but no gross income at all.

The goal is to account for anything that came to us on a check or direct deposit or went through Paypal. There is no "expense" category for "reimbursed expenses." Sure, we could create one, but the meal we paid for is more of the nature of a cost of good sold than it is like an expense. Cost of goods sold pertains to the thing you sold; expenses have to do with the costs associated with all the things you sold, and the benefits may accrue to future sales as well.

Cost of goods sold (I suppose we could put the reimbursements there instead of as "returns and allowances;" it's the net result that matters more than what you call it) are costs we incurred for the specific jobs for which we were paid. It's a direct matching of revenue and expense. The cost of operating your car cannot be specifically allocated to a certain job; some of the deduction for vehicle use is for depreciation and insurance and license fees, none of which can be allocated directly to any particular job or bit of revenue. You drive 100 miles to a job. you take $1.50 worth of depreciation in your mileage deduction. But your car will depreciate in value, say $2000 a year, whether you drove it 10,000 miles that year or 20,000. So there is not a direct matching of cost to revenue in the case of the "expense" deductions.

So it is true that the reimbursements should not be included in Gross income; I never said it should. But all money we receive should be included in Gross Receipts.

And it's the bottom line that matters, not how you got there. The only line from the Schedule C that hits the 1040 is the Net Income at the very bottom of the page, after all expenses and the home office deduction are taken. As long as that figure is correct, the rest is academic.

Go re-read what I wrote and see how I used the words "receipts" and "income" in different ways.

My training is not just in tax; I am also a degreed accountant. I'm also trying to teach a bunch of non-accounting people an easy-to-understand way to correctly arrive at their net taxable income.

You also are not taking into account that most shoppers barely make a taxable profit at all, and I'm trying to get them to focus on the fact that if they are filing a schedule C, they need to be focused on a profit motive, not on the free meals, lest they be ruled a hobby. It's hard to take a reimbursement-only shop and say you took it for a profit motive when no matter what you do, you're going to be in a loss situation because of the expense to get there; but you might have taken it as a barter situation, which would turn the meal received into bartering income.

I appreciate your background, but your "correction" of my information did not address the underlying question that caused me to explore the options I proposed for the OP.

Just because we don't *have to* report the reimbursements as income doesn't mean there aren't some legitimate situations were we *can* or even *should.* And a reimbursement-only shop is one of those exceptions.

If you want to weigh in on the question of reimbursement-only shops, please do so. But please don't nitpick the accounting to get to the taxable income figure. A-B-C=D is the same thing as (A- B )-C=D. As long as D is correct, it doesn't matter how you got to it.

And if you, as an IRS auditor, were to determine that the reimbursements should have been left out of the gross receipts figure, instead of being subtracted out as "returns and allowances" or a "cost of goods sold," tell me just how that will affect the tax owed??? The only part of the schedule C that goes into the calculations for SE tax, Taxable Income, and Earned Income Credit is the net income or loss figure on the bottom line -- not the figure at the top of the form.

Time to build a bigger bridge.

Edited 1 time(s). Last edit at 02/26/2015 05:56PM by dspeakes.
All of this talk about business meals is garbage. We don't eat at McDonald's as a business "meal." We eat at McDonald's because we are evaluating the meal. They are two entirely different things.

There are reasons that a body stays in motion
At the moment only demons come to mind
We're not even required to eat it beyond a taste evaluation. Sometimes it's best that way. There was a certain chili dog I ate in Globe once that I would have been better off to feed it to the trash can. I did four meal shops that day -- two lunch and two dinner -- and I can guarantee you that after what the lunch time chili dog did to me I did not eat more than one bite each of the two dinner shops (burger and pizza).

Time to build a bigger bridge.
JoR ... as an accountant for over 40 years I concur with your accurate depiction of the tax treatment of reimbursements. There is no way that required dining expenditures could be construed as income or gross receipts.
The idea that the reimbursements from a meal or required purchase be treated is income is absurd. The only amount that should be listed as income is the actual fees for the shop. And, yes, if you gross up the income and then deduct the expenses it nets out the same, but that's not proper accounting.

And MSC companies should NOT be including these reimbursement amounts on 1099's as income and reporting to the IRS as income.
Hello??? Nobody ever said it should be income. You are confusing the concept of Gross Receipts with the concept of Gross Income. Not the same thing. "Reporting" the "receipts" is not the same thing as "reporting" the "income."

PA Shopper, where did you get your accounting degree? And do you understand that financial accounting and tax accounting are two different animals?

And go look up the definition of bartering income and explain why the concept of a reimbursement-only dining shop does not fit that definition.

Time to build a bigger bridge.
Everyone can say MSCs should NOT include reimbursements on our 1099s until the cows come home. What's the point when they are going to follow the advice given them by their own accountants?

Equal rights for others does not mean fewer rights for you. It's not pie.
"I prefer someone who burns the flag and then wraps themselves up in the Constitution over someone who burns the Constitution and then wraps themselves up in the flag." -Molly Ivins
Never try to teach a pig to sing. It's a waste of your time and it really annoys the pig.

Mary Davis Nowell. Based close to Fort Worth. Shopping Interstate 20 east and west, Interstate 35 north and south.

Edited 1 time(s). Last edit at 03/30/2015 12:14AM by MDavisnowell.
Shouldn't the 1099 reflect the same as a W2. My company reimburses me for some mileage and expenses when I'm on an overnight or week long trip out of town. Shows up as a separate entry I forget what box. That's part of what's wrong with the tax code. Big companies get fined and they write it off of their taxes, but let me get a traffic ticket or a parking ticket and try and write that off. Nasty letters and the last several years returns come under scrutiny. Been there done that. Or rather had it done to me.
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