The IRS does not have the time or resources to worry about our minute earnings. I use a spreadsheet. If the IRS has a question, they will notify me and I will answer their question or argue the point.

I report every penny of the fees, 1099 or not. Why? I need to justify the 18,000 miles I put on my car, home office deduction, office supplies, computer, cell phone, etc, etc. In the end, I do pretty well. I did not owe any taxes this year except some self employment tax. If you are keeping proper records and wind up with an audit, you won't sweat doctoring docs for weeks to cover up income. The bank statements will get you every time! I figured if Trump could make millions and pay no taxes, why shouldn't I do the same???!! It's amazing what you can actually write off these days.

If a shopper is required to make a purchase and then be reimbursed, can you claim the purchase as an expense? I feel that I should, for I always purchase something I don't want and either give it away or throw it out like the chicken in my fridge right now.

Laurie,
If it was reimbursed, it is not a net business expense for tax purposes. Nice try, but no banana! (i.e., if you claim it as an expense, then you need to claim the reimbursement as income! So, no net business expense occurred.)

@Lorrie68 wrote:

If a shopper is required to make a purchase and then be reimbursed, can you claim the purchase as an expense?

Lorrie, a required purchase is an expense against income, as long as you count both for tax purposes. How you track and report that depends on how you do your personal MS bookkeeping, and on whether you want or need your records for individual MSCs to exactly match their 1099s. Some firms that issue 1099s include all monies paid to a vendor, regardless of whether it was income or income plus billed expenses, and some don't include what was paid out in reimbursements.

For taxes, I count all monies coming in as income, then count all (allowable) monies going out against that income as expenses. On my personal spreadsheet, I itemize everything by how the MSC breaks out the fees. So I know how much was fee and how much was reimbursement. And, I keep all receipts, of course.

So, the bottom line is that if you count the full amount as income, which I assume you are, based on your question, you can count the reimbursement as an expense.

It's like the Chipotle shops: They pay a flat $25 fee, which you would count as income. If your meal is $11, that counts as an expense. So, your ultimate taxable income from that shop is $14 (not counting mileage and other general expenses).



Edited 4 time(s). Last edit at 07/02/2016 01:33PM by BirdyC.

Lorrie,
As I said, no net income or expense will actually happen, no matter which acceptable method you use for reporting IF the expense and the income are the same amount. Birdy has given you a great example of what happens when they are different.

I haven't read through all the comments, but you have to file if you net 400 or more income from all sources....so if you are a house wife or husband and file separate...and just do mystery shopping as a hobby and for pocket change.....and after deductions it is under 400 you don't have to file.

also, there is something about paying quarterly taxes if you make over a certain amount.

the problem with counting reimbursements...and then deducting that expense is that is seems many MSC don't do that....so if you made $800 cash and $500 reimbursements with MSC Z....MSC Z is only reporting $800 to the IRS.

Edited 1 time(s). Last edit at 07/02/2016 03:06PM by jmitw.

and I doubt you can't deduct your cost of eating out between clients since you can't make it back to your home/office. It is possible to pack a lunch in an insulated cooler bag.....kids in school do it all the time and lunch bags sit in a hot room for a few hours....if you want you could freeze lunch meat, there is a yogurt that is made to freeze and thaw, fruit and veggies won't go bad in a lunch bag for 4 hours...

maybe if it is an out of town over night hotel stay...
IRS PUBLICATION 463

You can deduct the cost of meals in either of the following situations.

It is necessary for you to stop for SUBSTANTIAL sleep or rest to properly perform your duties while traveling away from home on business.

The meal is business-related entertainment.

AND NO THIS DOES NOT COUNT IF YOU STOP FOR A SIESTA....common sense tells you that it is only referring to OVERNIGHT/MORE THAN A DAY trips, not needing a nap or a rest break between clients.

and no it does not include working 10-14 hours per day that is still 1 day.

i would not trust any CPA/tax person who claimed the meals were deductible in those cases.

(if the meal is a mystery shop, the reimbursement is deductible).

Edited 5 time(s). Last edit at 07/02/2016 03:28PM by jmitw.

Since we are on the topic of taxes I am curious about whether or not I can deduct part of my expenses for eating when i have a parking lot audit at a restaurant. Some of the lots I do are in town and I could easily just walk in one door and out the other of the place the lot is at but sometimes the restaurant lot is not near any other place I could spend my time. For this particular one I am doing it would be difficult for me to park with the restaurant valet and then not walk into the restaurant as the valet is right in front of the door.. Once there I can not easily just hang around in the restroom or the lobby for the two hours required for parking. So I am wondering what others think is reasonable in terms of meal write offs. I could go to the bar and sip one drink for a long time. But I cannot really just walk outside right past the valet and obviously not be going to the restaurant.

Sorry, Sandy. Meals to disguise your valet parking shops are not a business expense.

@walesmaven wrote:

Sorry, Sandy. Meals to disguise your valet parking shops are not a business expense.

Thanks Wales, I have never charged the restaurant expense before but since this topic was about meals i was thinking perhaps I could. I am going to happy hour and paying my way with the $$ i earn for parking and will be happy with that. I do not really understand the idea behind taking off the price of lunch when you are out doing shops. I do not get my lunch paid for at my job. And for people who free lance in other businesses and are driving around town all day I cannot imagine they can expense their lunch either unless the lunch is directly related to their business such as a meeting or perhaps they are a restaurant critic. But then I don't really know the law. If you are "out of town" on a day long or longer business trip that sounds like a different story to me. I would think the IRS would have some more definite guidelines on that. Most companies I have worked for have rules for reimbursable lunch when on a trip such as you need to be xxx miles from your home/work and gone more than xxx hours. I believe they do not just make up those rules but are following the IRS or state rules for this.

@jmitw wrote:

and no it does not include working 10-14 hours per day that is still 1 day.

Yes, you can deduct the cost of a meal eaten when you are on the road for business for 10 to 14 hours. You DO NOT have to be on an overnight trip in order to deduct meals eaten while conducting your self-employment business. I don't know why you would think that. The deduction is 50%, unless, of course, the meal is eaten in the course of conducting that business--taking a client to lunch, for example.

jmitw, are you a CPA, financial advisor, or licensed tax preparer?



Edited 3 time(s). Last edit at 07/02/2016 10:29PM by BirdyC.

From IRS Publication 463:

Travel expenses defined. For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.

An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.

You will find examples of deductible travel expenses in Table 1-1 , later.

Traveling Away From Home

You are traveling away from home if:

Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and

You need to sleep or rest to meet the demands of your work while away from home.

This rest requirement is not satisfied by merely napping in your car. You DO NOT have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest.

I think a 10- to 14-hour day is substantially longer than an ordinary day's work. I think it's reasonable to assume that most people, unless they are superhuman, cannot work and drive for that amount of time without a significant break and still adequately perform their duties. I know I can't.

I would say that people need to eat, as well as take a break, during a day that long. There's nothing that says or indicates they have to brown bag it or pack a cooler with food.

Under the specific heading of "Meals," the IRS again states:

Meals

You can deduct the cost of meals in either of the following situations.

It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business.

or

The meal is business-related entertainment.

Maybe many mystery shoppers can indeed be on the road all day and not have to rest or eat. Maybe they don't have to go to the bathroom, either! But that doesn't mean that everybody can do it, or that they should, or that they need to. It's not some badge of honor to work for 12 hours straight without needing a significant rest or needing to eat.

From the further reading I just did, it seems that some self-employed people don't have an established "tax home" (as defined by the IRS). In that case, they might be considered "itinerants" and can't count meals on the road as an expense. It could be that category might apply to some shoppers who only do out-of-town routes,

Thanks Mary Ann. For me, I use Quicken Home & Business. Pricey, but it records everything..

I know people cringe at setting up an Excel spreadsheet, but it is a the only way to go. I just ran a total for the first six months. In less than a minute, I had the total of fees, reimbursements and mileage. If you don't want to set it up yourself, find a bored 10-year-old. They know more about computers than we will ever learn I also record the Date / MSC / Company Shopped / Beginning-Ending Mileage / Expense / Fee / Unreimbursed /GeoVerify code.

The reason for the unreimbursed column is simple. If you get $10 reimbursement total for a required burger, medium fries and medium soda but it cost you out of pocket $10.88, that's 88 cents unreimbursed. That only works if you are getting the required items - no add-ons and no padding. Another example is that shop that requires the purchase of two gallons of gas and a snack. That's great, except it cost me more than $5 for those items (gas is over $3 a gallon around here.) I also put in the column any supplies such as toner, copy paper, special log books for mileage, etc. Keep all your receipts! All of them. And keep them forever, almost ... That's what 11 by 14 envelopes are for (and that's an expense, too.)

@MA Smith wrote:

@guysmom wrote:

Wales is right. If Company A pays you $450.00 in fees and $285.00 in reimbursements, you probably won't get a 1099...HOWEVER, you DO still have to report the $450.00 as income. This applies for all the companies you shop with, so it's best if you keep track of your income on a spreadsheet or something similar. For those companies that you shop for and earn over $600.00 in fees, they should send you a 1099. However, there has been some discussion on the forum about companies who pay via Paypal, and even though the fees total over $600.00, may elect NOT to send a 1099. So again, you are responsible for reporting your income, and for keeping track of how much you earn. It's all reportable. (but not the reimbursements).

I believe this is the most misunderstood concept for a Schedule C. You are as a taxpayer required to report all income as it is earned. This would create a huge nightmare for the government so instead of reporting our 1099 income every week, biweekly or monthly,; we are allowed to claim it at the end of the year. The IRS gives us a break of not paying quarterly taxes if our previous year's tax return did not require it and you know you won't push it for the current year.

I will repeat myself and say it out loud again. Set up spreadsheets! I have a workbook that contains all of the companies I work for and the solid spreadsheet that has all of my other spreadsheets information. My main spreadsheet has the date, company, fees, bonuses and reimbursements. It also has the information for my meals, mileage and any non reimbursed expenses related to this business.

I would love to be able to set up a spreadsheet to help people but mine is a work in progress. I won't know if it's really right until the accountant sees it.

I wish I could help more but none of us work the same way and so it probably could be more of a detriment than a help.

MaryAnn

@walesmaven wrote:

Laurie,
If it was reimbursed, it is not a net business expense for tax purposes. Nice try, but no banana! (i.e., if you claim it as an expense, then you need to claim the reimbursement as income! So, no net business expense occurred.)

If you are required to purchase two gallons of gas at $3.50 a gallon at the specified station, but are reimbursed $5, then the remaining $2 is an expense. You were required spend more than you were reimbursed. Keep the assignment guidelines with the receipt in case it is challenged.

Every time I hear someone bragging about never paying any taxes, I think about all the IRS rules that were written to catch someone else's cheatin' ways. Leona Helmsley famously said, "Only the little people pay taxes." But even her bill finally came due.

What is a geoverify code and how is it useful for recording expenses and such? Thanks!

@Flash wrote:

You can figure all your travel meal expenses using either of the following methods:
Actual cost. If you use this method, you must keep records of your actual cost.
The standard meal allowance, which is the federal meals and incidental expense (M&IE) per diem rate. The GSA website lists these rates by location. Note that lower rates apply for the first and last days of travel.
The deduction for unreimbursed business meals is generally subject to a 50% limitation."

Oh. My.
I just checked some of those rates and I NEVER spend that much on food on routes. I was not aware that I could use the standard meal allowance.
Next question, is the deduction taken at 50% of that rate as well?

This has been discussed before. As far as I know, an IC can not use the per diem rate for meals. Never. I am sure that others will chime in.

@bgriffin wrote:

@Flash wrote:

You can figure all your travel meal expenses using either of the following methods:
Actual cost. If you use this method, you must keep records of your actual cost.
The standard meal allowance, which is the federal meals and incidental expense (M&IE) per diem rate. The GSA website lists these rates by location. Note that lower rates apply for the first and last days of travel.
The deduction for unreimbursed business meals is generally subject to a 50% limitation."

Oh. My.
I just checked some of those rates and I NEVER spend that much on food on routes. I was not aware that I could use the standard meal allowance.
Next question, is the deduction taken at 50% of that rate as well?

IRS Publication 463, "Travel, Entertainment, Gift, and Car Expenses," Page 6.
[www.irs.gov]

"Who can use the standard meal allowance. You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses."

"50% limit may apply. If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance."

"Caution! There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost."

Edited 1 time(s). Last edit at 07/04/2016 02:04PM by mystery2me.

This gets really complicated really fast. If you use the per diem for meals, then anything above the actual cost of the meals has to be reported as taxable income, the onus is on the employee to have the receipts in order to establish the actual cost. As an IC, each of us is both the employer and the employee. If you subtract actual meal costs, then the burden is on the employer to collect the receipts from the employee. I think this article (https://www.ictaxadvisors.com/business-tax-services/use-per-diems-business/) makes it reasonably clear that it really makes no difference in the end, because you are really only entitled to the actual cost. The real difference is in the bookkeeping and record-keeping end. As an IC, just keep track of actual costs. It is much, much easier. This is a less technical explanation from LinkedIn: [www.linkedin.com]

The best advice I've seen so far, regardless of method or software used, is Keep Records.

@DeaconJohnB@gmail.com wrote:

The best advice I've seen so far, regardless of method or software used, is Keep Records.

Yeppers! Including receipts, of course! I'd hate to have just a spreadsheet of my own creation if the IRS auditors ever came calling.

I don't claim all of the meal expenses I should, because sometimes I lose the receipts. I only claim those meals for which I have receipts. (Although some tax advisors say you can claim non-receipted expenses if they're habitual for you and in line with your typical expense. I only do that with merchandise I buy for resale, because often a receipt isn't provided. So I write up my own detailed, itemized list of items purchased and the cost.)

I scan the receipts into computer. That way I don't lose them. Better than having envelopes with receipts going back 12 years!

Maybe these will help. I complied it for the MSPA ShopperFest in LV in June. One is the IRS Regulated Mileage and Per Diem for Business, Medical and Moving . Also have Meals and Incidental Expenses (T&E) Breakdown, Notes I complied but are not really written out AND Possible IRS Forms for Mystery Shoppers with an Office in the Home, if you have a set space where you do your MS work...some utilities are deductible based on the space used and the amount of shopping you do (think cell, landline, computer, video equipment, etc)...some are business expenses and some are Office in the Home. If you want copies, PM me, and I will send you my email address. Hugs

When I checked in the past, the first land line into a residence is NOT deductible. IRS figures that that first line is for personal use and is not an additional expense to the business. Itemized long distance charges for business on the home land line are allowed as deductions, but no portion of the basic expense. If a second landline is brought in for the business, that is deductible.

@Flash wrote:

When I checked in the past, the first land line into a residence is NOT deductible. IRS figures that that first line is for personal use and is not an additional expense to the business. Itemized long distance charges for business on the home land line are allowed as deductions, but no portion of the basic expense. If a second landline is brought in for the business, that is deductible.

That's interesting, Flash. Never heard that before. When I started this business, I needed internet access. Only way to get it was to have a land-line. No land-line, no internet. So I HAD to get a land line. I've deducted it ever since, and it's never been questioned. It's bundled -- can't get one without the other. And it's all one price, not broken out by the phone company on the billings. And there's absolutely no question that MS'ing requires internet -- sure, it's available at the local library, but they aren't open when I get home from shops! I live out in the middle of nowhere (really; our local gas station has a big
sign over the front door "You Are Nowhere".

it's everything from $1.00 to $600 overall combined from all companies. If IRS wanted to audit someone, all they have to do is look at your bank account. You would then have to account for how you got the extra $$ put into your account. Companies are REQUIRED to send you out a 1099 MISC for any income of $600.00 or more. Companies send in reports of their 1099 Misc's with how much and to who they made payments to (many even list check/direct deposit #'s for payments issued to everyone). IRS then matches everything up with your SS # (that you provided to the mystery shopping companies already) and if things don't match up like they should then IRS will most likely send you out a LOVE Letter letting you know that they know you had other income that you didn't claim and you would need to either amend your taxes to include the income and pay the taxes back on that portion of your income. Or contest it and try to explain the reason you forgot to claim it and didn't think you had to include it as income. That can be a long and drawn out process and can potentially create audits for other years for you. It's always better to claim everything you earn. All money earned as a mystery shopper would then go on just 1 schedule C with a list of what companies paid you how much. Do not however combine schedule C income from another self employment business you were doing. As for mileage on vehicles there is a place to list that the vehicle was used in more then 1 schedule C same goes for home office etc. You can have as many schedule C's as you need for all the businesses you are doing and your deductions get spread out to each of them unless it is specific to that business.
I know what I'm talking about too as I have worked for a tax firm for the past 11 years and have seen many people that have tried to pull something over on the IRS from schedule C incomes and they always come to us when they get love letters they do not understand.

Edited 2 time(s). Last edit at 07/09/2016 03:07AM by gbritto.

A number of folks here have worked with tax prep for a very very long time and earnings from the first dollar need to be claimed on a Schedule C whether the total reaches $600 or not. $600 is the point at which any particular MSC needs to issue out a 1099, not when you need to start claiming the income and is a totally different issue than than your total income from shopping.

You do not report food that you must eat to evaluate a food shop. It is a TOOL of the trade you must buy to perform the shop. If they tell you that you must bring a guest the value of that food should not be reported as income either. Those "reimbursement only" shops do require gas but those expenses may or may not be deductible depending on the IRS examiner that is auditing you. Do not believe any advice except from YOUR accountant as "different strokes for different folks" do apply. No one has the same circumstances and your amateur advisers are not sitting down with you to view what your accountant is seeing and hearing. When you are audited the examiner does not want to hear, "But the people on the forum said it was OK"