SteveSoCal for a non-accountant you make a lot of assumptions. Wherever you go for your reliable tax information, just make sure you are not confusing tax issues with interior decorating. I think that knowledge of taxation definitions are crucial. One Of my first challenges while training in tax law was learning how to read it. Is it plain English?? Most of the time words do not mean what you think they mean. You all are so heavy about it when knowing what to report is really basic record keeping and arithmatic. And let me say two things. If you get it wrong, and I mean really wrong, two contacts are possible by the IRS. The least of them is a computer generated letter in some month two years down the road that will point to the unreported income on your return and bill you the tax, interest and penalties right then. The worst of them is to become investigated by the nasty people in nasty suits in the Criminal Investigation Division, a real department, for suspected tax evasion that they would get up all in your grill to prove. The US Treasury got Al Capone for tax evasion and his was an extreme example. A tax evasion investigation is one that looks like an audit but has big black letters at the top that says "investigation of suspected tax evasion". Reimbursements do not apply, you say. The IRS position is that they decide what is or is not an allowable exclusion from gross income. So my thinking is that it is better to face little hassles of doing your arithmatic, to save the big hassles of someone who you never want to meet doing it for you. My previous career was in taxation.

Edited 1 time(s). Last edit at 07/28/2015 08:38AM by SR802.

@SR802 wrote:

SteveSoCal for a non-accountant you make a lot of assumptions. .

...and your assumption that I have not consulted a tax professional regarding my options, am somehow confused about the difference between taxes and interior decorating, and am incapable of basic record keeping or arithmetic is insulting.

If accounted for reimbursements are indeed required to be reported as gross income by contractors, can you point out any particular section of the tax code that specifies anything related to that?...or a reason why they are omitted from 1099's by virtually all MSCs? Your argument so far is based on a fear of "nasty people in nasty suits" and a suspicion that mystery shopper reimbursements would generate a criminal investigation into tax evasion.

As I said before, I'm not suggesting that anyone take my advice for how to report income. I just suggesting that they don't take yours. Nobody should be taking tax advice from anonymous people on an internet forum regarding taxes! Please consult a tax professional who can demonstrate their qualifications, is making a successful living advising people about taxes, can be present if you do get audited and can spell the word arithmetic.

In my case, I have both met with and had my income investigated by the IRS. It was not a big deal. They were actually kind of nice about it and dressed pretty casually. Because of the simplicity of how I reported my income, it was very easy to see that it was a clerical error on my end, resulting in unreported income. They agreed to wave penalties and interest if I agreed to write them a check for the difference on the spot, and I did. They didn't take any issue with my reimbursements not being reported and that was the end of it. I received the impression that they could care less about the few thousand dollars that most mystery shoppers make annually, but they did ask if I got to eat at any Michelin starred restaurants.

Others will probably not be in a similar situation to me, which is why each person should consult their own tax advisor. My shops are almost exclusively dining and travel. I almost never drive to shops and the only deduction I take from MSing is unreimbursed airfare. I have two other businesses that I file Schedule C's for and my income from those businesses far outweighs my MS income. I have a hefty tax burden from my other businesses and a long history of paying on it, so I continue to feel confident in my choice to not report the accounted for MS reimbursements.

@SteveSoCal wrote:

...and can spell the word arithmetic.

That made me choke on my biscuit. LOL.

SteveSoCal - OUTSTANDING post!

Indeed a very good post, and aside from taking offense which was unintended I consider it an irony that in first grade I was the one in class able to spell arithmetic, however I mispelled it here. I agree that everyone should absolutely not rely on any tax advise in a forum but definitely do learn questions to ask.

I said record keeping and arithmetic, because it has to be determined in every case whether or not in fact reimbursements are omitted from 1099's. If they are, there are other verifications one who is diligent may want to do. And it is possible that the scope may be more complex than your preparer is willing to research. Not being advice of any kind let me give you insight to a tax preparer. This could be helpful in your search for the right one.

If you do not find one designated "Enrolled Agent" you gamble with both motivation and expertise. These are what you need, not a CPA and not a career tax preparer without the designation. That said, find among those Enrolled Agents ones who were trained by the IRS directly. Many former tax examiners earned their private practice enrolled status by being employed five years. These are the ones who will recognize that your situation is rare and unique (it is) and who will recognize that they have to open books to chapters they had not read before. I can tell you that there are tax codes with mystery shoppers written in because otherwise limits would be applied to our meals and lodging.

Any time you have an examination you deal with the factor of auditor discretion. What one may not sweat another may make red ink about. The Enrolled Agent not only knows this but knows how to present unique sutuations in ways that would forestall audits or tip them in your favor without you breaking a sweat.

Tax preparers know the things they have reasons to know and have to look up the rest. You think WE have guidelines? Give a good pro your business and your questions. Let him earn his fee.

Anyone deducting their shopping related credit card fees and interest? I forgot to add that. A tax thread is not a good idea though. Income and taxes go hand in hand.,

Edited 2 time(s). Last edit at 07/29/2015 02:09PM by SR802.

@SR802 wrote:

I can tell you that there are tax codes with mystery shoppers written in because otherwise limits would be applied to our meals and lodging.

A quick search of this will lead you to publication 463, where you will find the following (not specifically related to mystery shopping):

@IRS Publication 463 wrote:

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.

As far as the hotels and cruises go, those are rarely expenses since the charges are reversed in most cases

I was thinking of that so good call, but how many other professions fit all these criteria?

What it also says is this (by inference): It says that monies are spent, reimbursed, accounted for, and deductible. [ You can not deduct something in this instance if it is not included in gross income. ]

Forgiveness of a debt is taxable income. Granted it is not intended to be taxed but there is this to consider when looking squarely in the eye of a tax examiner in a bad mood. One must be proactive.if the are reversing the charges why not pay them and get a refund? This is far better if you have the choice. If you do not, again to stimulate questions. Do cruises let you on without paying?

Edited 1 time(s). Last edit at 07/30/2015 08:36AM by SR802.

I'm always baffled if there is an IRS audit and someone shows up having been reimbursed $25 for food, no fee and also deducts $10.00 for mileage as an expense...

Rasky brings up another point, which is that shops with no fee start to approach the issue of it being an in-kind payment, and then technically taxable, so I think the tax burden could potentially be set at $15 of income at that point, considering a $10 deduction for mileage.

Shop structures like Goodwin offers that give you a flat fee and have a required a purchase will definitely require reporting of 100% of the income, and then deduction of the expenses.

As far as professions that first the Pub 463 criteria can apply toward:
-A babysitter takes kids out for ice cream, gets reimbursed.
-A PI watches a cheating husband in a bar while having a meal, gets reimbursed
-A food critic or travel writer researching 'the best taco in town', gets reimbursed
-etc.

...and agreed you can infer that allowable deductions must then be reported, but I believe their must be another rule that applies more closely to the mystery shopping model (and that pub 463 is not designed with MSing in mind), because if you read that publication further, it says that the client who reimburses the contractor must then be subject to the 50% allowance on the meals, and I know for a fact the MSCs do not shoulder the tax burden for 50% of the meals that shoppers eat.

Hotel reversals, in essence, are a refund. They don't forgive the debt. the charge remains on your credit card. A refund for the exact value paid is simply applied to the card. For cruises, you are simply issued tickets without having to purchase them in most cases. If a ticket purchase is required, it is then reimbursed.

The argument for the reimbursed items not being in-kind benefits (as explained to me by an accountant for a MSC I used to work for) is that the shopper does not receive the full benefit of the experience. They have to be working throughout the time there and have severe limitations placed on what can be ordered, who can come along, etc.. The example of a taxable in-kind benefit or barter would be more like a hotel giving a shopper 2 free nights + all expenses in exchange for a report about the efficiency of the staff.

This is a second income thing for me. Yesterday I drove an hour and a half to spend the evening with my son and take him to dinner. On the way, I did two bonused shops totalling fees of $65. I am still fairly new at this, but assume I can claim the mileage for the shops part. I would have driven those miles anyway and NOT been able to claim the mileage had I not done them. I had to leave an hour earlier than I would have to allow time to complete the shops. I typed one report in the ten minutes I was waiting for him to shower. The other I typed in about fifteen minutes after I got home. For $65, I believe it was a nice little extra chunk of change. Only thing that would have been better is if I'd have been able to find a dinner shop to take him to. It works for me!!

@SR802 wrote:

"If you do not find one designated "Enrolled Agent" you gamble with both motivation and expertise. These are what you need, not a CPA and not a career tax preparer without the designation. That said, find among those Enrolled Agents ones who were trained by the IRS directly."

Bunk, and I disagree. I am acquainted with numerous newly-anointed EAs, who have never prepared a return, except their own. The designation does nothing to qualify them to earn my business.

"Tax preparers know the things they have reasons to know and have to look up the rest. You think WE have guidelines? Give a good pro your business and your questions. Let him earn his fee.

"

Totally agree. Except, I would add a pronoun,. Let him or her, earn the fee.

I have to edit - some EAs who I know have prepared more returns than just their own. They have also prepared acquaintances and relatives.

How do you know so many Enrolled Agents? You mean each one took the IRS qualifying exam, paid $109 dollars, subjected themselves to voluntary tax audits and did all this for kicks? All of them?

[en.m.wikipedia.org]

Edited 1 time(s). Last edit at 08/01/2015 09:46AM by SR802.

The question of whether an MSC can deduct our reimbursed meal expenses has come up and an inference is made that they are limited, so that they reimburse more than they deduct and that is not true. The layers of hierarchy come into play instead. And also some mention of babysitter is made. A babysitter is an rmployee not an independent contractor. The babysitter is paid back an expense they incurred on behalf of the parent. The parent by proxy bought their children a treat. This may be food but it does not impose a reporting requirement.in the same terms so too do we pay money that is not an expense for the client in appropriate sutuations,and not an expense to the MSC. The restaurant spent no money on meals. The MSC gets reimbursed for the reimbursements The funds reimbursed are fees to the mac and the client pays a fee that includes funds paid out for conducting the shops.

Tax is complicated, indeed.

Deleted as I don't fit the criteria.

Edited 1 time(s). Last edit at 08/01/2015 07:40PM by Kr.

@SR802 wrote:

A babysitter is an (e)mployee not an independent contractor.

First off, that's a rather broad and inaccurate statement. Some babysitters are indeed contractors.

Second, I think you are either not fully reading or not understanding what I wrote. I stated that Pub 463 implied that the meals deduction would not be equally imparted to the client, and therefor not specifically directed at shoppers and MSCs. There was never a question about the fact that MSCs are fully reimbursed by their clients and not subject to taxation on the meals they reimburse us for.

Can we just table the tax discussion for now? I can't see how this is helpful to anyone.

Sure table it, but the client has no expense if the food is their own restaurant. Just inventory consumed. Just decide on who is an expert in your mind and go to them. Good luck all.

Babysitter can not be a contractor legally. Unless parents leave it up to them how and when and where to care for their children. A babysitter is reportable on 940 for domestic employee. But never mind really. Tax pros exist because they are needed. Just find yours.

who cares about babysitters? This forum is for mystery shopping & merchandising.

I don't understand how you can say the client has no expense if the food is in their own restaurant, just inventory consumed. In addition to the cost of the food, how about the burden of overhead including the building, the furniture, the equipment, and the payroll, all involved in preparing the food? Of course the client's accountant may not expense the meals as we may imagine but they are still an expense absorbed into the general burden of overhead whether they are written off or not. They are not simply a reduction in inventory. That information is bizarre.

@SR802 wrote:

Sure table it, but the client has no expense if the food is their own restaurant. Just inventory consumed. Just decide on who is an expert in your mind and go to them. Good luck all.

Edited 1 time(s). Last edit at 08/02/2015 02:55PM by MDavisnowell.

Don't forget, the client has to reimburse us for our actual out of pocket. F&B costs for a $30 meal may only be $10, but they take that $30 cash and send it back to us. Probably another $20 goes to their actual costs of providing that meal.

@SR802 wrote:

How do you know so many Enrolled Agents? You mean each one took the IRS qualifying exam, paid $109 dollars, subjected themselves to voluntary tax audits and did all this for kicks? All of them?

How I know EAs is irrelevant. My point was that regardless of which letters follow a person's name, EA, CPA, MD, JD. . . does not mean I would seek one out and hire him/her based solely on that. Some are competent and qualified, but not all. It is irresponsible to advise anyone to only trust their tax situation to an EA. Homework is necessary.

"If you do not find one designated "Enrolled Agent" you gamble with both motivation and expertise. These are what you need, not a CPA and not a career tax preparer without the designation. That said, find among those Enrolled Agents ones who were trained by the IRS directly."

I totally disagree with such a blanket statement.

Much negative, and the question begs how you decide on a competent professional without knowing the subject matter yourself? EA is not a set of letters but a beginning. One chooses among those, not just the first one you see. Indeed there are different levels of expertise, and different retained skills, but the foundation of an EA is not the same as a CPA, a PA, and especially too, a tax preparer. Nobody leaves a basic tax course as an EA.

@LisaSTL wrote:

Don't forget, the client has to reimburse us for our actual out of pocket. F&B costs for a $30 meal may only be $10, but they take that $30 cash and send it back to us. Probably another $20 goes to their actual costs of providing that meal.

The client, ours being the MSC would presumably (in the world of simple accounting) invoice the client, the company being shopped/shopped for, the amounts the shopper expends. The MSC passes this reimbursement through with a presumed net gain or loss of zero, and the invoiced client presumably takes the amount paid and puts it on their books as something like Quality Control or Business Development and deducts it there. It is never considered a meal expense except to the shopper who had the actual meal. And so we are exempted from having a limitation on the deduction.

Since you quoted me, your response has nothing to do with what I said. I just pointed out there are more expenses to the restaurant than you were stating. Nothing about who invoices who, what they do with it on their taxes or what a shopper should do on their own taxes. I don't shop for food, just money, so I have no clue how others deal with it at tax time.

I meant "expenses" in taxation, not expenses as spent.,

No taxation without representation.

@shoppinlori wrote:

This is a second income thing for me. Yesterday I drove an hour and a half to spend the evening with my son and take him to dinner. On the way, I did two bonused shops totalling fees of $65. I am still fairly new at this, but assume I can claim the mileage for the shops part. I would have driven those miles anyway and NOT been able to claim the mileage had I not done them.

Hi Lorri, you might want to check with your accountant or tax professional. According to mine, if the main purpose of your trip was to see your son, the miles are not deductible. If, however, your main purpose was to mystery shop a route and it happened to coincide with the direction of his home, they are. It's a fine line, and I have been unable to find how the IRS determines "intent."