It is a legitimate business expense you can claim since the company did not sell anything at or below msc per diem you were allowed. This applies to anything that you would could use for business. It does apply toward food as well as long as it is realistic. If the msc only allows you a reimbursement ie. Per diem of 25.00 for you and your SO and there is nothing available on the menu that you like with out spending say 35.00. You can write off the additional 10.00 as your own personal business expense. The reason why is MSC pick the location for you to dine. Your job is to give an un baised company review to msc. In this case in order for you to honesly be able to do that you have to eat something that you will like.
If it is say a store hardware whatever buy something you can actually use for youe business. I shopped a hardware store i didnt want a water and they only cover 2.00 i surley didnt want a pack of .99 screws lol i bought a pack of ink pens that were 7.99 i can write off the additional 5.99 because i can claim it as a true business exspense.

@Fenicia I recently did a high end cosmetic skincare shop also at $40 with $5 fee so we probably not talking about the same shop. However, I've done quite a few cosmetic high end counters ( at Nordstrom and Neiman Marcus ) recently and the guidelines don't say you have to buy the item you are targeting, so sometimes I buy eyeliner at $30 or primer at $38 even though I'm asking about skin cream. I usually look online first and find the items I want for closest to reimbursement. You should ask the MSC if you can buy makeup vs skincare, usually makeup is less than the skincare products.

This topic's really timely for me because I did three shops today--not going to say where--where you're required to make a $1 purchase so you can get a receipt. I bought other things that were $3 or $4 that we needed around the house.

On the one hand, I can make a case for not deducting the overages since my purchases aren't going to be used for my business. On the other hand, this store doesn't have a lot of things you can buy for under a dollar, and few of them are the sort of things you'd go to this store to buy. I can also make a case that a slightly more expensive purchase is a legitimate business expense since it helps me maintain my cover compared to the under-a-dollar products. A $100 purchase wouldn't work, but I think a $3 or $4 purchase would fly.

Having said that, I'm not a lawyer, especially not a tax lawyer :-)

I never saw a shop that offered a reimbursement as being "for something you need". I have only seen them willing to reimburse up to a certain amount for some small purchase. I have looked around a place and found that there was nothing in the price range that I "needed" but items I "could buy". A whole lot of Christmas stocking stuffers are purchased adding a buck or two to the reimbursement rather than waste it on something I did not need. My choice, my expense. Another way around it is to pick up something that I need for my shopping business. Lets say a $5 package of paper when I have a $2 reimbursement. I have an office supply expense of $3 for printer paper and a $2 reimbursement. A $6 package of AAA batteries for my DVR and a $2 reimbursement. I have an office supply expense of $4 for batteries and a $2 reimbursement.

After reading your post, my observation is you live well !!

@xfixer wrote:

After reading your post, my observation is you live well !!

Who is the "you" in your post?

Edited 1 time(s). Last edit at 11/14/2015 10:13AM by Fenicia.

@alter_evo you are correct
Another expense that you can claim is if you work out of your home you can charge your company rent it also pays a higher amount for tax deduction then if you work out of an office you are able to claim expenses for furniture office furniture you are able to claim expenses for all of your supplies that you need your cellphone is inexpensive well if you buy a digital camera or camcorder that as well as an expense those are things that you have to supply in order to operate your business I say your business because it is your business you are contracted by another company to do a job for them you can claim mileage on your car or your fuel expense one or the other oil changes they are an expense anything that you do to operate your business is an expense.

If anyone has a question about exspense that you may or may not be able to claim ask and i will try to answer it of i can or i will find our. I have been self employed for the last 10 or ao years and delt with this & learned.

Really? Can we claim cellphone expense? I have never claimed the cell phone expense before on my income tax. Are you talking about the cost you paid for the phone itself? Or The phone service fee that you pay the wireless company monthly?

@Drthomps01 wrote:

@alter_evo you are correct
Another expense that you can claim is if you work out of your home you can charge your company rent it also pays a higher amount for tax deduction then if you work out of an office you are able to claim expenses for furniture office furniture you are able to claim expenses for all of your supplies that you need your cellphone is inexpensive well if you buy a digital camera or camcorder that as well as an expense those are things that you have to supply in order to operate your business I say your business because it is your business you are contracted by another company to do a job for them you can claim mileage on your car or your fuel expense one or the other oil changes they are an expense anything that you do to operate your business is an expense.

@Fenicia wrote:

Really? Can we claim cellphone expense? I have never claimed the cell phone expense before on my income tax. Are you talking about the cost you paid for the phone itself? Or The phone service fee that you pay the wireless company monthly?

Fenicia, you can claim at least your monthly cellphone expense to the extent that you use it for business. If you use your phone to e-mail and call schedulers, schedule jobs, fill out surveys, use the GPS to get you to shop locations, etc., you need to estimate the amount of time that consumes vs. your everyday personal use of the phone. So, if your phone plan costs you $80/month and you, legitimately, use 30% of your time on it for mystery shopping, you can claim $24 of that as a business expense.

I don't know about the purchase cost, though. Others here know more about tax specifics than I do (but being self employed for 30+ years, I know basic stuff). If you need to buy a new phone with certain features in order to conduct your shopping business, then I imagine that you can also write off that 30% toward business.

As with all of these sorts of things, you need to keep good records and document as much as you can. In this case, you don't need to document every single time you pull your phone out to use for mystery shopping, but you need to have a very good idea of your business vs. personal use.

HTH!

IRS used to be very specific that you could not deduct the first phone line into your home on the theory that 'everybody needs a phone' but you could deduct long distance charges that were made. I haven't looked it up lately, but there was the thought that the addition of a cell phone was assumed to be a 'second line for business' and was indeed deductible.

As for the comment above about charging yourself 'rent', the IRS rules on a home office are very specific. If you plan to claim a home office it must be a space, "Regularly and exclusively used for conducting your business." A corner of your kitchen or family room would be hard to prove that it was "Regularly and exclusively used," without some sort of divider or door that set it off from the rest of the living space. A guest room as your claimed office would also not be assumed to be exclusively used if you had a sofa bed in there to use it as a guest room. If you claim a qualifying home office you figure what percentage it is of your total floor space and then are entitled to deduct that same percentage of costs such as electric, heating, rent if you are a renter. If you are a home owner you must depreciate that space on the appropriate depreciation schedule and this then reduces your cost basis in your home, which is reclaimed when you sell the home. You do not need to claim a home office to have your home as the base for your self-employed business, nor to claim equipment you may buy/use for your business.

I think, too, that in order to "charge your company rent," you have to be incorporated in some way. I imagine, but I could be wrong, that most mystery shoppers don't incorporate....

In addition to Flash's excellent explanation of the home-office situation for tax purposes, you can depreciate that home-office space whether your business shows a profit or a loss. But if you show a loss on the business, you can't deduct proportional utility expenses. Unfortunately, I am too often in that situation!

But if you 'charged your company rent' then you would probably need to include that amount as miscellaneous personal income or as 'rental income' to you personally. It would quickly become a circular argument.

Consult a tax professional and save yourself some stress.

You can charge your company rent if you work out of your home. You cant claim utilities you can claim your phone bill. Internet as well. You also can claim the cost of the phone. If you buy a new laptop or tablet you cani it to.
You do not have to be incorporated or a llc.
Self emploued ie. Sole proprietor.
With your car it os either mileage or exspense's. I hauled frieght (hotshot) for a living for years and i did my own repairs on my van. If i bougjt tools i claimed them. This is because van was primarily use for work. To make the rwpais to operate i needed tools. I alrwady had lots of them. But of i saw something on sale at a good dwal and i wanted it i went and got it.
All these things you can do. I am not aaying buy tools to work on ur car. But if you use it primarily for shops. Then it is primarily for business.
These things arw not wrong or areas of grey. They are real things you can do. I also do not use these types of in and out tax companies. I use a private tax attorney. I have seen these quick shops per say miss alot of these things. Mine will go through my receipts for me
I save every one put them in a zip lock bag so they dont dade.

On the home office deduction, you can use the Simplified Option introduced in 2013 which is much less burdensome. No home depreciation is involved.

@Flash wrote:

If the OP is indicating that there was nothing in the boutique that would fulfill the requirements for the shop for less than $55 ($60 with tax), I am not going to quibble with that. What I personally would have done is irrelevant to the question asked, which was 'is the $20 overage deductible as an unreimbursed business expense'. In order to complete the shop, the OP is indicating that was the minimum possible purchase, and completing the shop is important in our business to building your reputation.

The chance of any shopper getting audited based on their Schedule C is slim. The personal knowledge that you did what was appropriate and fair to yourself and your fellow taxpayers is what is truly important--at least in my personal 'code of ethics'. If I am in a situation where I am blindsided with a reimbursement not covering, I will claim the overage that I can not do a darn thing about while still completing the shop, and I will sleep well knowing that I am trying to abide by both the letter and the spirit of the law. But if I choose to do the shop again, I need to plan that the reimbursement amount is merely a discount on my otherwise personal purchase.

No offense but saying the IRS not hitting a shopper with an audit is slim...is bad advice. I unfortunately have had to deal with clients that have been hit. The good news is their employers ended up with the grief. And the employers deserved the grief. My clients still get grief every year, because their tax returns still go...ding, ding,ding.

I will say this out loud...KEEP RECORDS OF EVERYTHING! KEEP THE RECORDS ON PAPER, besides your computer. Find a good tax preparer, someone who has a clue.

In 2013 less than 1% of all tax returns were audited. 11% of those earning a million or more were audited. Those earning 200,000 or less had a .88% chance of being audited. Of course everyone needs to keep records on paper and on their computer. But overall the chance of anyone not in a high income bracket being audited is slim. IRS does know that there is more opportunity for the self-employed to cheat, which is why we need to dot our 'i's and cross our 't's. What we do in good faith may turn out to be wrong on audit but is unlikely to be considered fraud.

@Flash wrote:

In 2013 less than 1% of all tax returns were audited. 11% of those earning a million or more were audited. Those earning 200,000 or less had a .88% chance of being audited. Of course everyone needs to keep records on paper and on their computer. But overall the chance of anyone not in a high income bracket being audited is slim. IRS does know that there is more opportunity for the self-employed to cheat, which is why we need to dot our 'i's and cross our 't's. What we do in good faith may turn out to be wrong on audit but is unlikely to be considered fraud.

Your statistics are impressive.
My point was...don't set yourself up.

I've had 3 employers that were supposed to offer a W2 at the end of the year. One is in a federal prison, the other 2 are scamming somewhere in the Caribbean. Then I had the job where the accountant wrote out the W2 wrong.

My brother had the CPA, who didn't understand the ROTH IRA.

3 to 7 years of proving this and that for me. My brother had to threaten the CPA with a lawsuit.

The IRS can go back as far as they want. They come after the little people first, because we don't have the cash to fight them.

My advice, don't take short cuts and fess up. A C schedule and its instructions will tell what's ok and what isn't. Most of our stuff isn't. Real route shoppers get the benefits.

I don't think anybody is suggesting taking short cuts. At the same time, we do not need to be trembling in our boots and avoiding taking those deductions to which we are entitled.

I was audited once, based on my 1980 return, about moving expenses because I moved in 1980 but flew into the new area to house hunt in 1979. I claimed the house hunting trip as a 1980 expense because it was associated with the move and other expenses of the move. IRS said 'no'. They wanted the cost of the house hunting trip to go in 1979 when it was incurred. By doing so I saved a significant amount of money net because it dropped me to a lower bracket for 1979 and had little impact on 1980. They have never bothered me since. There were no penalties for trying to do what seemed sensible even though it was technically wrong, even for the additional few bucks I needed to pay on the 1980 return. Back in those days they had a large enough budget to do a lot more audits than they do now. Now their expectation is $6 in additional taxes for every $1 spent on audit and they know that the lower part of the income spectrum is unlikely to yield that.

A large portion of the audits of those with income under $25,000 seem to be reserved for those who claim self employment without documentation as to income or expenses in order to present an income that makes them eligible for the maximum earned income credit and child credits.

What accounting software do you use and do you recommend it?

TurboTax is what I use for taxes. As for accounting, I only use my spreadsheet. The xls format of an Excel spreadsheet has been adopted as an international standard and virtually any spreadsheet software is able to open it. This means that my spreadsheets I created 20 years ago (not for mystery shopping) are as easily opened today as they were when they were created and I can anticipate that 20 years from now my shop spreadsheets will be as easily opened as they are today. If you use accounting software such as Quick Books, twenty years from now you may need to get a version of Quick Books that can run on your current equipment in order to 'import' your old files to read them.

You should contact the MSC and let them know that their reimbursement does not cover the cost of the item you have been required to buy. I've had that happen, too, and the company has reimbursed me the full amount. Also, I think the MSC would want to know if the amount they are reimbursing does not cover the cost of the item.