I was wondering if reimbursement for meals that you get on a restaurant shop (or part of it) counts as income on income taxes. I've searched this forum for answers and also online. I don't have an accountant, so I'd appreciate and guidance from those of you who have been at this for awhile! Thanks so much!

I do remember reading discussion on this. I personally consider it a necessary purchase to evaluate the food and service, so I deduct mandatory reimbursements as non-taxable. Did you look in the "new shoppers" section of the forum? I am sure that the information is covered there.

Reimbursements are not considered taxable income. Fees and bonuses are taxable.

If you have a situation where you are reimbursed more than you spent, the difference between what you were 'reimbursed' and what you actually spent would fall in the category of being income. An example of this would be a company pays you $50 as reimbursement for something that cost $30, the $20 would be income. (This is an exceedingly rare situation.) Another example would be if you were reimbursed $25 for something you purchased and subsequently took the item back for a refund (which companies allow only in very rare situations) the $25 would become income.

some people will tell you that you can't deduct 'meals' in full...but i think that refers to meals outside of business (lunch while staying at a hotel for business or to entertain a client)

when your business is to buy food to evaluate, i would think it is deductible as any other purchase required like toilet paper

@jmitw, please don't confuse meals done as part of a specific shop that are reimbursed and meals you decide to purchase while you are out on the road you might want to deduct.

Specific shop meals are reimbursed and that reimbursement is not taxable. If you spend more than is being reimbursed, only in a limited sphere is that extra expense deductible. If you could have purchased all required items and stayed within the reimbursement, an overage expense was not a shop requirement and therefore is not a business expense. Shop reimbursements are not subject to the IRS rules for business and travel meals.

IRS has very specific rules for business and travel meals that are address deductibility of those. In our business we would not be entertaining clients. Most of us do not go far enough or for long enough that deductible business meals would apply.

The simple answer is to consult with your tax advisor.

In general, you should have your own accounting system, I use a budget app. I enter, for my expense, what I spent on a purchase assignment, up to the maximum reimbursement. If I am on a fee only shop, the fee is my maximum I can enter.

I later enter what I received in total compensation, fee plus reimbursement. The taxable amount is whatever I made over the reimbursement claimed.

In simple terms: If you received $15 total payment from the MSC, and spent $10, you made $5 taxable income.

Any purchases, not just meals, that are required to finish the assignment, are not to be counted as income. As previously stated, expenses over the reimbursement can be claimed also, but it's a red flag to the IRS.

If the shop is a fee + reimbursement for a require meal then a solid argument might be made that the meal was a business expense and the reimbursement is not-taxable.

However, if the shop carries no fee and is reimbursement only then I do not see how one can argue that the meal is a business expense; the meal may very well be entirely taxable. One reason I do so very few shops with ACL.

Consult your tax advisor.

Nope. You spend the money, you are reimbursed. The reimbursement is not income.

Reimbursements are never taxable. Period.

@myst4au wrote:

Reimbursements are never taxable. Period.

Payments which labeled as reimbursements which exceed expenses are taxable - e.g. when one is reimbursed for something which one returns. (Yes, there are MSCs which permit this).

Reimbursements which are not related to business income may be taxable.

A reimbursement is just that, A reimbursement in the exact amount (or less) than the actual amount spent. Money given to you which is exceeds the amount spent is not a reimbursement. It might be a flat fee. It might be something else, but it is not a reimbursement. Regardless of what label some misguided MSC (I have not encountered one) uses, if they give you more money back than you spent, then the excess is not a reimbursement, and that excess money (not a reimbursement) is indeed taxable. Check definitions of "Reimburse" and "Reimbursement" in a dictionary or on Wikipedia or on the IRS website. Here is one: "Reimbursement is the act of compensating someone for an out-of-pocket expense by giving them an amount of money equal to what was spent." [en.wikipedia.org] So, how can it be less than the amount spent. Well, in the world of MSCs, they often cap the reimbursement at a maximum amount. This is often done for dinners and even the trivial $1 reimbursements used as a POV.

The company I've been shopping with makes it very clear that reimbursements for meals are not taxable. For this reason and also because I love food, I will do these shops whenever I can find someone to join me!

No. It is a "work product" (really). You HAD to buy the meal in order to do your job- didn't you? Yes it is a nice benefit that you get to eat your work. But your job really does require you to asses taste, temperature, texture, quality, etc- and that really is a real job. Its a wash- you get reimbursed for your meal so it had no real cost to you. Not taxable but not a deduction either. That is how my preparer interprets it and it makes sense actually when you think about it.

Personally, I find the easiest way to do this is to count all the monies paid to me as income (input). Then I count all the actual costs to me, such as the meal I had to purchase, as expenses (output). That is, direct costs to perform the shop, not additional overhead expenses.

If you're reimbursed for a meal, then this comes out "in the wash." For example, one restaurant shop I do pays a flat $25 fee, but the meal has to be purchased out of that fee. For taxes I count $25 as income, and the $10 or so for the meal as an expense. That leaves me with a gross taxable income (before mileage and other expenses) of $15.

Because the methods MSCs use to pay, itemize, and report via 1099s vary so much, I find this method much simpler than figuring out for each individual shop what your profit is and factoring that into your income from MS. It all works out the same. Even if your figures per MSC don't match their 1099s, you don't report your income by MSC. As long as your records are meticulous, this should work.

As others have said, meals necessary to do a shop aren't the same as meals eaten while traveling for business. They fall into two different categories.

Above all, though, my feeling is that anyone who has self-employment income really should have his or her taxes done by a professional tax preparer, unless he or she has a background in tax prep or tax accounting. Or at least have one you can ask questions of.

(Edited for grammar and punctuation, not content.)



Edited 2 time(s). Last edit at 10/19/2016 05:38PM by BirdyC.

Let me qualify my previous response by saying that by "professional tax preparer," I'm not talking about H & R Block, Liberty Tax, etc. Or a CPA, necessarily. There are tax folks who specialize in accounting and tax prep for small businesses, sole proprietorships, partnerships, etc. You wouldn't want a CPA who works with large corporations (unless he/she had a background in working with the "small guys" and kept up with current tax law). I think we shoppers probably sometimes short ourselves on the legal tax deductions we could be taking (such as counting reimbursements as taxable income, not taking mileage for every time we leave the house to do a mystery shop [I was guilty of that until my tax guy kept nagging me about mileage!], not taking office expenses like paper, ink, supplies, etc.

There are incompetent professionals in any field, so if you're going to hire a tax pro, do enough research and ask enough questions in order to be comfortable that that particular person expertise with the small-business owner.

This is an easier method for me. I count my payments and reimbursements as income. I keep a file of all my expenses and then deduct them on my taxes.

NO, I agree with Flash. It is not income. It is reimbursement.

This is one more reason i find it worthwhile paying an accountant to handle my taxes. I think it cost me $250 but of course it is tax deductible also.

I know reimbursed meals are required purchases and fall under something blah blah blah

Edit: looking back at this i meant something else. When you get a flat fee and are required to purchase something that is a required purchase and is deductible. Sorry for confusion to you

Edited 1 time(s). Last edit at 10/23/2016 02:03PM by quiettime.

Lorrie68's method arrives at the exact same result in terms of net Schedule C income, so there is nothing wrong with the method. In fact, since some MSCs add reimbursements into their 1099s, understanding the concept she outlines is more important than many assume.

And if all payments funnel through the same account with no other deposits (or easily documented periodic deposits) you have a clean record of receipts. So direct deposit goes to the same account as PayPal swings money to and checks are deposited to. That account represents 100% of my shop receipts for the year (fees, bonuses, reimbursements etc.) and matches up to my spreadsheet. Reimbursements and other expenses get deducted from that total as I work my way down my Schedule C.

If its reimbursement, no I do not add it to my taxes. If it has a fee plus reimbursement, I record the fee.

I do put all of it in my spreadsheet for the accountant. This includes what I actually spent and reimbursed. If I go over and I need it, she takes meal deductions because of the amount of mileage I drive per day.

We are allowed to take meals if we drive over 50 miles from our home. My shops normally start at 150 miles one way so it's not a big deal for me.

Personally, I give my accountant everything she can work with at the end of the year. My taxes are always a mess so at least she has the information to help me save a few bucks and still show I made a profit.

@MA Smith wrote:

We are allowed to take meals if we drive over 50 miles from our home. My shops normally start at 150 miles one way so it's not a big deal for me.

Didn't know that, I'll have to look into that

I would like to see a reference to an IRS publication that supports that. Anyone?

@walesmaven wrote:

I would like to see a reference to an IRS publication that supports that. Anyone?

Don't have the quote from the IRS pubs. It may fall under what OTR drivers are allowed, I could be wrong and usually am. I did look it up and the language is confusing.

It is something that doesn't take a whole lot of work to add to the spreadsheet if you're tracking business expenses other than mileage.

My mileage normally runs over 150 one way per day, so I believe this is why I'm being told it may be feasible as a deduction.

Not going to worry about it. I'm only trying to give my accountant every option available so I show the government a real profit as opposed to a hobby and keep the income tax as low as possible.

Then it may depend on how OTR drivers are defined.

I tried before to nail down the rule about taking meal deductions for one day trips. Didn't find anything definitive.

I found IRS guidelines stating meal deductions should only be taken for overnight travel. [www.irs.gov]
But I also found discussions on CPA forums etc. opining the IRS was interpreting tax court decisions too narrowly, and a case could be made in *some* instances for deducting meals while traveling outside your home area.

So really what it boils down to is there is nothing in writing stating you can deduct the meals. If you take the deduction, and I am not suggesting you should or shouldn't, you are working in a gray area.

@mystery2me, there are a whole lot of gray areas in interpreting IRS rules in part because there are so many variations on themes that they really can't cover down to every possibility. This is where some common sense comes into play and gets documented in my records. If I got audited, I might need to pay more taxes but I would be unlikely to get penalties added to it.

My personal rationale about meals on the road (and this is PERSONAL, not something I have ever found in IRS rules or examples) is that when I had a 9 to 5 job only the occasional team building lunch for the office was employer paid, though coffee was provided and usually a microwave for folks to bring something from home to heat up. I generally carried my lunch and only occasionally went out for lunch, which was on my own dime and not deductible. In my self-employed life, if I am going to be on the road for many hours I will either pick up a lunch or dinner shop or I will carry my lunch. If I eat before I leave home and have my lunch 5-6 hours later, it will be another 5-6 hours before I need another meal. Either I will be home within 12 hours of the time I left or I will be staying in a hotel or motel on the road and that is more fully defined by IRS, as are meals when you need to stop for sleep.