Do you pay at the end of the year when taxes are due? Do you pay quarterly? What are the benefits of each? Not sure how I'm going to do this. I cannot file the long form. I'm single no kids, no write offs.

You can always file the "long" / regular 1040 form. You may have to since you are going to need to file a Schedule C to report revenue and expenses. You may find that you prefer to pay estimated taxes quarterly as a way to budget, but the real reason is to avoid penalties for underpaying taxes when you file next April.The rules for determining whether you will be liable for underpayment penalties are somewhat complex, but if you regularly do your own taxes you should be able to figure it out. If you pay someone to do your taxes, then ask them. I suspect that Dspeakes and perhaps some others will provide advice also. I think the key is to know if you have been sucessfully filing your own tax returns. The fact that you don't think that you are able to file the "long" form concerns me.

Basically the first year I don't *think* you will get a penalty (some tax peoples here can answer that better than I can). Ongoing if I'm not mistaken you must pay quarterly estimates that equal at least the lessor of 90% of tax owed or the amount of your last year's tax liability.

Let's say last year your tax liability was $1000 and this year it will be $2000. In order to not get penalized you would have had to have paid in $1000 in quarterly estimated taxes because $1000 (last year's tax liability) is less than $1800 (90% of this year's tax liability).

If next year your income dropped and your tax liability was again only $1000, you would only have had to pay in $900 in quarterly estimated taxes because $900 (90% of that year's tax liability) is less than $2000 (the previous year's tax liability).

bgriffin is right. The penalties are based on last year's tax liability.

New shoppers are unlikely to generate enough net taxable income to worry about it too much, but if you find that your fees minus your mileage are leaving a profit, stick 25% of that profit in a savings account to pay taxes with because the SE tax alone is over 15% and if you have other taxable income over $10,000 (this will be a higher number with kids or spouse) you will pay another 10%.

These are rough figures. but your days of filing the 1040EZ are over since you are now self-employed.

Go to the New Shopper area and read the tax thread there, and spend some time on the irs.gov website reading about "small business" "vehicle expenses" and "self employed."

and until you have your hands around the topic, throw out nothing -- keep your receipts, your shop reports, your mileage logs, and an accurate record of every penny you receive from an MSC. Do not rely on them to tell you what you made; you must keep your own records because if you're audited, you're not going to have your schedulers show up to verify your income.

I cannot remember the last time I filed a long form. When you're single, no kids, have a regular job and you rent, there's not much to write off. It's not that I don't know how, just never had enough to write off. I do my own taxes every year.

IMO, you should (or should have - now that the April 15 deadline has passed) go online to Turbotax(https://turbotax.intuit.com/) and use that software to process your return.

It can offer the best decision for you as to how to process your return. The initial questions it asks and your answers to them, will trigger its recommendations as to whether to go long form or short. It can also decide, based on your income, if you qualify for free software or a certain charge.

I use tax software. Even they say I cannot use the long form. I had NOTHING to write off. I'm single, no kids, don't own a home, worked a regular job....that's it.

You can ALWAYS choose to use the long form. Why you would want to if you don't need to is a different question, but it is always legal to do so. The tax software program probably gave you the right advice, and probably saved you money. BUT - now you can't avoid the full 1040 form because you need to file Schedule C. You can avoid it if you are willing to report revenue and not deduct expenses. The tax software will permit that, but should hopefully advise against doing that.

•Standard deduction for single taxpayers - $6,200.....I did not have $6,200 in deductions.

bgriffin and dpeakes, do you ever run into problems with the IRS regarding deducting expenses? I was thinking about this, that my tax home being where it is, I could easily schedule long routes out of state that will enable me to deduct .56/mile. I could, say, run up 20,000 miles and deduct $11,200 from my income to reduce my SECA tax burden. I just am wondering how the IRS looks at this--if they will frown on it.

Okay, let's back up a bit. Johnb is talking about Itemized deductions, which have nothing whatsoever to do with the Schedule C. he can file a schedule C and take his *business deductions* there and still have the Standard deduction available to him.

The first computation he needs to make is to calculate his business income. Simplistically, that is:

Gross revenues = all fees and reimbursements received from all the MSC's whether there is a 1099 or not.

Business deductions = mileage deduction, cost of purchases required by shops, whether specifically reimbursed or not, cost of paper, toner, equipment bought just for mystery shopping (if over $100-200, consider depreciating it), and maybe a home office deduction (which I won't get into here).

The first figure minus the second figure is your Business Net Income (or loss). This is the bottom line of the Schedule C and carries onto the front of the 1040 to be added to (or subtracted from) your other income to produce your Adjusted Gross Income.

In between, if you have a profit, there is SE tax to be computed which is about 15+% of that figure. So if you have $1000 net business profit, you will pay about $150 in SE tax. Half of the SE tax becomes a deduction on the front of the 1040, reducing the Adjusted Gross Income.

From Adjusted Gross Income, you subtract either Standard deduction or Itemized deductions, and then you subtract your exemptions for yourself, your spouse, your kids. That gives you Net Taxable Income.

If that is a negative number, you will pay no Income Tax. But you still have to pay the $150 SE tax. I won't get into Earned Income credit that might apply that could make that go away. Plan on paying it until you know otherwise.

If that is a positive number, you will pay Income Tax in addition to the SE tax.


Okay, jilummer is talking about business deductions. Under the scenario you proposed, you would be deliberately trying to create a business loss to subtract from your other income. Under this scenario there would be no SE tax, and the taxes you would have paid on your (for example) $40,000 salary from your day job would be reduced by $11000.

****Yes the IRS frowns on this.**** It is "allowed" if you are legitimately trying to make a business profit but had a rocky start, but that means you would *not* be deliberately driving 20,000 miles after losing propositions. Certainly early in the learning curve, we have all driven to do a shop and later done the math and figured out we just paid to do that shop and ended up with nothing in our pocket to show for it. But if you're running large losses (and $11000 is a large loss) and don't change your business model pretty quick, yes, they can disallow the deductions (even retroactively, so don't assume you got away with it the first year if you don't get audited right away) on the grounds that you had no intention of making taxable income.

If you're going to do this, either do it to try to make money at it and try to end up with a positive number on the bottom of the schedule C, or do it as a hobby. But with a hobby, all the income is taxable and the expenses go on the Schedule A and are capped equal to the amount of income. So with a hobby, the best outcome you can get is to break even. You cannot create a loss. But you also don't pay SE taxes.

I would suggest both of you sit down with a tax preparer or at least get a copy of Turbo Tax to play with so you can see how the figures are entered and where the results feed to and what it does to the bottom line.

Keep all records, receipts, and shop documents showing where you went and what you were paid. Throw nothing out until you have done a few of these tax returns and know what was or wasn't needed.

And if you couldn't follow what I said above -- get help. Mistakes on a tax return can be extremely costly.

You canb still take the standard deduction if you use the "long" form. I have been doing it for several years. That has nothing to do with your need to use Schedule C to deal with business income and expenses.

@johnb974 wrote:

•Standard deduction for single taxpayers - $6,200.....I did not have $6,200 in deductions.

You're right, need to back up. I just started doing Mystery Shopping this year. Before this I had worked for an aerospace company. Through all the years there I did not file the long form. There was no need to. I had one job, single, no kids, did not own a home. I know this year may or may not be different. It depends on how much I make doing mystery shopping.

The only "work" you're adding to your return is the Schedule C. And that does not depend on "how much" you make mystery shopping, it depends on if you make anything at all mystery shopping because all income needs to be reported unless all of the following are true:

You wouldn't have to file a return at all if you weren't mystery shopping

and

You make less than $400 profit mystery shopping (that's profit after subtracting expenses and mileage from what you were paid; you could get $20,000 and have expenses of $19601 and not have to file)

and

you did not get a 1099 from anyone at all, nor should you have (meaning no company paid you $600 or more, whether they send a 1099 or not, because they could always send you one late)


If all the above are true you don't have to file a return. If any of the above are not true, you must file but may or may not owe any taxes.

Also, I think you can get a penalty the first year if you make too much.

One more thing. Although I had to pay the SE tax I was able to deduct my health insurance costs b/c I am self employed. I think that's what it was. Does that sound right?

Many people, when they refer to the "long form," are referring to Schedule A, which is for itemized personal deductions such as mortgage insurance and medical expenses. I believe johnb974 is referring to Schedule A.

As many have already answered, if you are approaching mystery shopping as a business, your deductions should be claimed on Schedule C and not on Schedule A. If you are approaching it as a hobby, then your deductions can only be claimed on Schedule A, but it wouldn't do any good unless all of your Schedule A deductions combined exceed your standard deduction. That is why it is usually better to approach it as a business if you meet the quailifications.

There is no penalty for earning money, as long as you report your earnings and pay income tax and self-employment taxes.
Are you possibly thinking of the reduction Social Security benefits if you begin collecting Social Security benefits before "full" retirement age? The current maximum is about $14,000 per year (net, not gross income). There is also a limit for each of the remaining months of the year if you retire in the middle of the year, the limit being the maximum you can earn each month and not lose any Social Security benefits.

@pony123lucy wrote:

Also, I think you can get a penalty the first year if you make too much.

@pony123lucy wrote:

Also, I think you can get a penalty the first year if you make too much.

One more thing. Although I had to pay the SE tax I was able to deduct my health insurance costs b/c I am self employed. I think that's what it was. Does that sound right?

What penalty? Please stop speculating about tax matters here. If you have some basis for your comments, please put a link to your source so we can see what the context is. But guessing about things does not help anyone. You don't say what the penalty is, why it would only apply to the first year, or what amount constitutes "too much."


Your health insurance costs do not get deducted from your business income. Many people think it does because the software usually has a place on the Schedule C to enter your health insurance figure but this is just to remind you about it because if you are not self-employed, your premiums can only be deducted as part of the medical component of the Schedule A. If you are self-employed they are handled differently. Your health insurance has zero effect on the SE tax you pay because it is not part of the computation for Net Business Income.

If you think you paid less SE tax because of the health insurance deduction you are either confused or you incorrectly put it as an expense on the Schedule C. And I suggest you figure out if you did or not and amend your return immediately if that's what happened because it was probably a significant deduction and the penalties will be significant if the IRS has to find this out two years from now.

Does anyone know how many years you can file a loss? I've heard it was five years in the past, but I recently heard there is no maximum amount of years to show a loss.

Basically if you have a profit in three out of five years the IRS presumes you are trying to make a profit and will allow the loss years without questioning it. But if your profit years are $25 and the losses are $3000 they may take a closer look.

If you don't meet that standard you might be asked to show how you expect to ever make a profit at this. They will try to disallow losses after a certain number of years of losses but it's not automatic. But this is where professionalism comes into play. If you keep good records, keep your receipts, don't do things like driving 100 miles for a $5 fast food shop and try to claim the mileage, have a business license, have an EIN, take training classes and get certifications to improve your skills and open more opportunities -- these things help support that you are seriously in business and not just dabbling in mystery shopping to get free meals.

It will also be a factor if you "substantially" participate in your business. Someone who does 5 or 10 shops a year will have a hard time convincing the IRS they are in business. Someone who does 100 shops a year will be on much firmer footing.

If your losses are going down over time, this will be a factor in your favor, especially if you can show why the losses are going down. For instance, a new shopper doesn't have access to high priced shops, but may do some unprofitable driving to get the experience and curry favor with a scheduler to get the better shops. New shoppers are investing in their equipment, creating losses in early years that won't be there in later years. New shoppers may incur expenses getting to shops that they don't get paid for because they made an error.

If you are mystery shopping because you *want* a loss to write off against your other income -- it won't be hard for the IRS to figure this out. Business losses are not deductible if you are trying to lose money. You must have a profit motive -- in other words, you are trying to make a profit. Making a profit means paying taxes. A lot of people like the idea of being in business until they have to actually pay more taxes because of it.

@dspeakes wrote:

@pony123lucy wrote:

Also, I think you can get a penalty the first year if you make too much.

One more thing. Although I had to pay the SE tax I was able to deduct my health insurance costs b/c I am self employed. I think that's what it was. Does that sound right?

What penalty? Please stop speculating about tax matters here. If you have some basis for your comments, please put a link to your source so we can see what the context is. But guessing about things does not help anyone. You don't say what the penalty is, why it would only apply to the first year, or what amount constitutes "too much."

Hmmm, shall I include a link to my tax return where I paid a penalty for earning more than I withheld taxes for? In my case it was not been due to mystery shop income.

Your health insurance costs do not get deducted from your business income. Many people think it does because the software usually has a place on the Schedule C to enter your health insurance figure but this is just to remind you about it because if you are not self-employed, your premiums can only be deducted as part of the medical component of the Schedule A. If you are self-employed they are handled differently. Your health insurance has zero effect on the SE tax you pay because it is not part of the computation for Net Business Income.

If you think you paid less SE tax because of the health insurance deduction you are either confused or you incorrectly put it as an expense on the Schedule C. And I suggest you figure out if you did or not and amend your return immediately if that's what happened because it was probably a significant deduction and the penalties will be significant if the IRS has to find this out two years from now.

I did not say anywhere that I deducted my health insurance costs with my business income. I did not mean to imply that I paid less SE tax. I did not. However, I was able to deduct my health insurance costs elsewhere so it helped offset the "blow" of SE tax.

@pony123lucy wrote:

@dspeakes wrote:

@pony123lucy wrote:

Also, I think you can get a penalty the first year if you make too much.

One more thing. Although I had to pay the SE tax I was able to deduct my health insurance costs b/c I am self employed. I think that's what it was. Does that sound right?

What penalty? Please stop speculating about tax matters here. If you have some basis for your comments, please put a link to your source so we can see what the context is. But guessing about things does not help anyone. You don't say what the penalty is, why it would only apply to the first year, or what amount constitutes "too much."

Hmmm, shall I include a link to my tax return where I paid a penalty for earning more than I withheld taxes for? In my case it was not been due to mystery shop income.

The penalty was for not paying in enough Estimated Taxes. It was not for "earning too much."

You didn't make too much. You just didn't pay in enough. The penalty was based on the amount of taxes that weren't paid in, not on the amount of income you made. You have to pay in at least as much tax as what you paid the previous year, or 90% of the amount of tax for the current year, whichever is less, to avoid those penalties.

I advise my self-employed clients to pay in at least 20% of their net income each quarter, more if they have other income than their self-employed income. 30% is safer. But most self-employed people make so little in the beginning that they can't afford to set aside that 20% and end up paying interest and penalties and never get caught up because they can't pre-pay the current year's taxes as they should while they're on a payment plan paying off the prior year's taxes and penalties.

The problem is mitigated if they have children because they can get child tax credits and Earned Income Credit that will help pay the tax bill but single people with no kids are pretty much screwed because they have to pay that 15+% SE tax from dollar one.


Nobody ever said the tax code was fair, and if they did, they were lying.

Time to build a bigger bridge.

I understand this. In my case I earn a lot of capital gains that I find out about at the end of the year.

Ah, those are tough to anticipate, but at least they are taxed at a lower rate. But if you make sure you pay in at least what the previous year's taxes were there won't be penalties.

I didn't want to start another thread, for my question that I'm asking is in regard to taxes. When I perform a shop for $10.00 with a reimbursement of $5.00, I am paid a total of $15.00. Due to the payment being processed through Paypal and nothing is itemized, I've been claiming the entire $15.00 as income, but I place my $5.00 receipt in my expense folder to deduct at the end of the year. Am I doing myself a disservice with this method? Thanks in advance.

Nope, that's how I handle it.

It's also acceptable to put $10 as income and ignore the $5, but if you get audited that makes for a whole lot more 'splaining to do, Lucy.

The math is so much easier the way you described. The bottom line comes out exactly the same under either method.

I just started mystery shopping in April and was looking forward to it being a "fun" part time job. The company I shop for only does reimbursement and no payments for the visits and I am finding myself driving quite a distance to complete a shop. One scheduler knows that I am reliable and has asked me a couple of times to complete shops anywhere from 1.5 hours to 2.5 hours from my home with a reimbursement of $23 and a required purchase of a min of $8. I have done some of these hoping to build a relationship and receive more jobs but it doesn't seem like they are coming my way or are available in my area. My question is, how long does it take to do more profitable shops, or do they not really exist? And the other, this will automatically generate a loss if I calculate mileage. Is this normal? I've done 4 of these shops in one day, covered the span of another state, spent almost an hour each on the four reports for $45 not taking mileage into consideration. I even thought perhaps it is the company I have contracted with to shop; perhaps they are designed more for off setting costs to eating out and such. Another shopper explained how they set aside the value of payment for tax purposes and discard the reimbursement amount in their calculations. Can I do that knowing that is all I get paid?

I appreciate the help and apologize if these questions have been answered under another thread.

Hsylvia - If you only do jobs which generate a loss, then you have a money losing business. The IRS will not consider that to be a business if you do it year after year. You need to sign up with other companies which pay fees. If you do a reimbursement only shop along the way, then that is reasonable if you feel that you are getting value from the item(s) which you would ordinarily purchase.

Reimbursements are not taxable. Of course, if it is not taxable, then you can't deduct expenses against it. I do some "flat fee" shops which require a minimum purchases, but the difference has to make it worthwhile to me. I also occasionally do some fine dining shops (over $225 for 2 people), where the dinner is reimbursed, but there is no fee. I personally consider the cost of getting the free dinner to be worthwhile to me, as well as the time required to write the report. But the mileage is best treated as being non-deductible unless you can argue that it was to build your reputation, etc.



Edited 1 time(s). Last edit at 06/21/2015 04:39AM by myst4au.

If you want to earn more fees it looks like you need to do what most shoppers do: sign up with a TON of companies in order to find the jobs you like. Right now, you just seem to be shoveling money out the door, and you will NOT have a tax loss to claim!