This is my first yr. of mystery shopping. As I understand it, if you make more than $600. in one yr., you are required to report these earnings in your IRS returns. My question is; I have made over $800. total in mystery shop jobs in this past yr., that is by many different Cos. Do I still have to report these earnings even though I have not received any 10-92 forms from any of the Cos.?

Redrose,

you are required to report ALL of your revenue to the IRS. The $600 number comes from the company that is paying you. If they pay you more than $600 in a year, they are required to report your earnings to the IRS, and also send you a form.

You will also report your expenses to the IRS, and you'll pay taxes on your revenue minus your expenses.

As a mystery shopper, you are basically a sole-proprietor of a business.

Jacob

From the IRS website:

"Self-employed persons. If you are self-employed in a business that provides services (where products are not a factor), your gross income from that business is the gross receipts. If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. To this figure, you add any income from investments and from incidental or outside operations or sources."

I wasn't sure whether you were asking whether you needed to file a return at all if your total income was below a certain level or whether you were asking if you needed to claim your mystery shopping money. In either case because you are an independent contractor with income you must file a 1040 and you must file a Schedule C for your business. You need to claim ALL mystery shopping income on the Schedule C whether you received 1099-MISC for it or not. I usually claim both the fees AND the reimbursements (i.e. every cent the companies send me) because then I can show all my expenses (which clears out the reimbursements because I am only reimbursed for expenses I incur) including my unreimbursed expenses, mileage deductions, office supplies and equipment etc. You will find that your expenses will wipe out all the reimbursement money and most of the fee money. You want to keep good records of your expenses because if the PROFIT from your business (fees minus expenses) is $400 or more you will have to file a Schedule SE as well for Self-Employment Tax. The tax rate on Self-Employment Tax is 15.3% and is for Social Security and Medicare. In regular employment you pay about half of this expense and your employer pays the other half. As a self-employed person you pay both halves.

Just because you don't receive a 1099,don't make the mistake of thinking the MSP is not deducting for your services on THEIR tax return and eventually IRS will or could have access to information about what you were paid.

Excellent explanation FLASH..........I hope you don't mind that I gleaned some of your insightful info and posted on another forum............just to help some other folks out!!

It is scary that folks think if they don't get a 1099 IRS will never know about the money. Rarely will you have a PROFIT of any significance if you have balanced out the benefits of reimbursements and fees. But woe unto those who get snagged for not claiming the income at all.

Wow, Thanks, you've given me some room for thought. Seems, with my husbands income, declaring what little I've made this past year seems hardly worth it since we'll end up losing money because of what I've earned. As much as I love doing this kind of work, and with us only having one car, I'll have to reevaluate if I'll continue. I'm trying now to do 2, or 3 jobs in one day, maybe that will help.

The use of your vehicle for shops is tax deductible. For 2008 the rate is 50.5 cents per mile. That mounts up fast and certainly offsets quite a lot of the fees most shops pay. I think of that as "almost free" money because the deduction is designed to help offset the cost of the vehicle, maintenance expenses, tag costs, insurance, gas and repairs. In 2007, with the rate at 48.5 cents per mile I put on over 5500 miles on my vehicle doing shops (with my normal errands done along the way at no additional mileage) for a deduction of around $2700. I would have had to pay the same amount in tag costs and insurance whether I used my vehicle to shop or simply left it parked in the driveway. Similarly, the vehicle would have depreciated almost as much sitting in the driveway as being driven for shops. Since I do shops for my routine oil changes and gas shops help with the cost of gas, the real expense is repairs. I would estimate that if I just took the vehicle for my errands,instead of doing them along the way when I do shops, the mileage for that over the year would probably have been around 3000 miles, so in reality using my vehicle for shops really added only about 2500 miles to my use, which in the greater scheme of things isn't even much tire wear. Yet I have a substantial deduction which offsets fees dollar for dollar.

Thanks of the response, but I still have a couple of questions.


When you do not get a 1099 from the agency you work for,how do you report your income?

Which form do you file? 1040,1040A or 1040EZ?

The 1040 is what you want. 1040A is possible if your only income is from wages, salary and tips, interest, dividends and such. Self-employment (which is what mystery shopping is) is not one of your options. You need to be using a Schedule C to report your business income and expenses, and I don't believe that will feed into a 1040EZ either.

A copy of the Schedule C is available at [www.irs.gov]

Here is how I do it:

Part I line 1. Put in every cent you received from every MSP whether it was fee or reimbursement, whether you got a 1099 or not. In line F at the top of the page you marked whether you were a "cash" or "accrual" or "other" taxpayer. You have to decide the first year whether you will report each year your shopping income as one of these types and do it the same way every year thereafter. If you are "cash" you are listing on line 1 all money you received on or before December 31st. If you are "accrual" you are listing all fees and reimbursements that you had on your books at December 31st whether you had received the money or not. I have chosen "accrual" for myself because it keeps all fees, reimbursements and expenses in the same calendar year just as my shop sheet shows.

I will have no entries on lines 2, 4 and 6.

In Part II line 9 is your vehicle expenses. Those start calculating in Part IV. For me the easiest thing is to fill in line 44--mystery shopping miles are a), I have no regular job so b) for me is bland and c) is my year end minus beginning of the year total. You need to take a look at the instructions and decide whether you want to depreciate your vehicle over time or just take the miles. I just take the miles and I am allowed to take tolls as well.

Line 22 is your paper and pens and such. When I purchase small equipment (under $250) such as a DVR, digital camera, computer monitor, thumb drives, memory cards for DVR and camera, wristwatch with stopwatch capability, back up external hard drive, etc. these I include with "Supplies" on line 22. If I buy a piece of equipment for more than $250 I need to look at depreciating it, though under current rules usually the entire expense can be taken in the year of purchase.

Line 25 is if you are taking a portion of your cell phone bill, your internet expense, etc.

Line 27 comes from Part V line 48 on the next page. In Part V my first line is "Reimbursed business expenses claimed as income" and that is all the reimbursements I got back. The second line I list as "Unreimbursed business expense". Those are just the words I use, there may be better terminology. The reimbursements I got from the companies are of course the first line, the unreimbursed is for example: I take a $12 flat fee gas station shop. I am required to buy at least $5 worth of gas and make an inside purchase. Because I can stop the pump at $5 and meet the requirement, that is all I will claim, even if I choose to put in $10 worth of gas. Whatever I buy in the store I will claim the actual cost or $1, whichever is lower,because $1 is a standard industry requirement. Since this is a fee only shop, my purchases will not be or have been reimbursed, so in this case I will claim on my shop sheet "Unreimbursed expense" of $6 or less regardless of how much I actually spent. I have never found other items that need to go in Part V, though it is available for expenses you can find no other place for but that can be legitimately taken.

About some of the empty lines: I can't imagine that we would have entries on lines 8, 10-16, 19, 24 or 26. If you got business licenses or paid tangible taxes for your business equipment, that would go on 23. If you had your computer fixed, that would go on 21. If your car was in the shop and you had to rent one for the day to do shops in a timely fashion, that would be on 20a. I purchased a buying club membership out out of my own pocket specifically to be eligible to do shops there, which I put on line 18, but most of these things are irrelevant to our kind of business.

Line 24 definitely does not apply to us, so do not attempt to put your vehicle use or your required meal shops in here! In fact none of your use of your vehicle belongs in Part II except where it pulls in on line 9 from Part IV, so do not put your car insurance in line 15 or your driver's license, vehicle inspections or annual title costs in line 23.

Because we are neither manufacturing anything or buying goods to be resold at a profit, Part III is irrelevant to us and is left blank.

So now you add up your expenses on line 28, subtract that from your receipts to get line 29, which is the profit or loss from your business.

Be very cautious about claiming an expense for business use of your home. There are strict guidelines that must be met to do this, including that the space is used for no other purpose. It would be up to you to prove that it was used for no other purpose rather than for IRS to need to prove that it was. If you own your home you would be needing to depreciate that space in your house and reclaim that value when you sold, so it gets much more complicated than it is worth.

Hope this helps. Happy Tax Time!

How does everyone pay their taxes? Do you pay them each quarter or at the end of the year?

I generally have a fair idea when I file my return what I am likely to be doing financially in the coming year. Even back when I was working a regular job I had a sense of whether the coming year would have higher or lower non regular job earnings or expenses and could adjust the withholding at work. These days I know that my taxes will be low enough that I can just send a check with my return on April 15th without penalties. But I do preliminary work on my taxes around Thanksgiving when TurboTax first comes out so I can make year end adjustments to my expenditures and income to minimize my tax liability.

Flash,

Thanks for the info.