Hello there,
I apologize in advance for my long post and I’m aware that not everyone here is a tax professional, but I would like to know your opinion and learn from your experience and how you approach the situation. I’m new to this whole MS adventure, and started almost a year ago with a couple of MS apps, then curiosity got the best out of me and started to research about other MS gigs and signed up with a couple of MSCs. Everything was fine, until I decided to give more thought and decided to research about the “pay taxes” part. I have a full time job and do MS during the weekends (or when I feel like). I was glad I tracked my mileage and any fees/reimbursement since the beginning, but here are my questions:
1. If I accepted a MS job after my 9-5 job, do I start tracking mileage from my work to the MS location? And once I leave that location and go home, do I count that mileage as well? There is some confusing information everywhere and some will say yes, that counts because my home is also my “place of work” (office). I don’t have a special room for the “office”, just the corner of a table I have in the living room.
2. Shop that pays a fee and also reimburse expenses, such as restaurants or gas stations where you have to purchase a small item to validate. How do I categorize this? The shop fee, understandable, but what about if I purchased an item, as part of the shop instructions, and I get reimbursed? Does this reimbursement count as income? And then some shops where you are required to purchase an item, but no return and you end up spending more than the “reimburse up to” fee to comply…do you count the “excess” as a business expense? For example item purchased cost $30 (because there was nothing under $15).
3. I went to see a tax professional for a consult, but I think I got more confused after I finished with her. She advised to deduct a % of my cellphone bill (because I use it for personal and MS - I have a couple of MS apps), about 30% of SMUD (because I’m using electricity to prepare my reports, etc.), % car insurance, mileage, etc.
4. Do you use tax software to report your taxes or do you rather go to a tax professional? I have been using a tax software (not sure if I can say the name, rather not, so I won’t be banned or deleted) for many years, when my taxes were so simple, but now with MS income, no 1099, made over $1000, it feels complicated and the software wanted me to upgrade to their “self-employment” version. Does anyone use this and how reliable it is? I’m afraid to trigger an audit when this MS income actually helps me supplement my current income.
What are your thoughts on these? Once again, my apologies for the long post and thank you so much for reading this and for sharing your experience with me.

Edit note: Sorry on question 3, I realized that I didn't clarify that she said "a percentage".

Edited 1 time(s). Last edit at 02/09/2018 12:54AM by Monique09.

First the easy stuff... You cannot just take a write off for electricity because it is needed to make reports. If that is what the adviser told you, run like hell from that adviser. If, and only if, you take a home office deduction you can claim PART of your utilities as part of that. But be forewarned: when you sell your home that deduction will be "recaptured".

Next, if you use the IRS mileage deduction you cannot also claim your auto insurance; that is INCLUDED in the IRS rate.

Cell phone: if you use it x percent of the time for MS, you can take that percent of your phone bills.

Reimbursements are not taxable.

I have used Turbo Tax for many years and find it worthwhile to upgrade to the SE version. In fact, the Q and A for that would actually answer many of your questions! I find it highly reliable.

When you do shops on your way to and from your regular job, unless you are going WAY out of your way, that is all what the IRS regards as "commuter miles" and does not qualify for a deduction.

I am not a tax professional but I have been doing my own taxes, as a self-employed person for over 45 of the past 50 years. And, I have passed audits. All of the audit questions had t do with what I have said above, except that I did not have the issue of "commuting" since I did not have another job.

I'll add to what Walesmaven said and point out not to rely solely on your 1099 forms you get as what you use for taxes. Some companies will send forms that include your reimbursed purchases, other will include your mileage and gas pay along with tolls, and others still will only include what you received as payment after all reimbursements were issued. If you use the 1099's exclusively, you might have a mess on your hands or pay tax on more income than you should. They're going to be more of a comparison tool...

Best to keep your spread sheets so you can see your miles, deductions/reimbursements, and fees in that manner. Also keep in mind that not every company will hit you with a 1099 (you have to earn a certain amount for it to trigger printing but you still have to report the income) or notify you to check and print your documentations off... and if you don't print as you go, some companies are less than helpful at giving you the details on what and where you shopped.

I too am not a tax professional but here is my personal take on reimbursements.
If you spend over the limit of reimbursements that is on you except in the rare case there is nothing in the store or restaurant that sells for the reimbursement limit. If you can get a bottle of water or a stick of gum for under the reimbursement but don't want those items then it was your choice to spend more so the over reimbursement amt is not deductible. This applies to purchase return shops too. The company is not reimbursing you for the purchase (your reimbursement limit is $0 in this case) so if you decide to keep the item you cannot deduct it as an expense.
As for flat fee reimbursements vs separate item reimbursement I do it the same way. Usually when I have a flat fee job they dictate what you need to purchase. I would deduct only the least expensive way I could purchase what they ask me to purchase...purchase one entree...I would not get the lobster and try to take it all off as a reimbursable expense from a flat fee.
I keep a spreadsheet with a separate column for straight reimbursements, fees, flat fees and one I call reimbursements from flat fees. I only record the amt of my purchase that I can deduct if I spend over the reimbursement. Then I add up the combined two columns for fees (flat and regular) and deduct the two columns for reimbursements (straight separate reimbursements and reimbursements from flat fee) to get my tax figures.
So everyone correct me if I am wrong but so far no one has called me from the IRS.

Sandyf that is a good idea to keep flat fee shops separated. I will start doing that this year. I don't do a lot of those, but still it would be a good idea to have a separate spreadsheet. I also try to purchase items below their reimbursement fee, but sometimes is not possible, because guidelines will specify not to buy food items but stuff that can be perceived as gifts. I still have my doubts on mileage and hoping that someone can guide me on this. For example, I took a job during the weekend. I'm home and will start driving from home to the store, that is within 2 miles from where I live, do I track these miles? then let's say I don't have any other shops to do and I decide to go home and start working on the report, do I track the round trip for this shop? And still remain the question about my 9-5 job. I won't track the mileage from home to my regular job, but what about tracking after my 9-5 job to perform a shop? Thank you very much to all of you who replied to my post and for your patience with this newbie. I truly appreciate it.

My understanding is that you cannot double dip on mileage for the irs so if you go from your work and stop on your route home trying to take that off at tax time it would be double dipping since they do not allow home to a regular job and back to be tax deductible. Also if I leave home to do two ms jobs I can only deduct the combined mileage of both jobs on the same trip, not the individual mileage home to one job and back and then home to the 2nd job a few blocks from the first job and back. I have no idea how they would know though that I did not do one in the morning, go home and then later in the day drive back to do the dinner time one...but you are supposed to have all that info for back up in case the irs questions you.
I agree that if your tax person told you that you can deduct your electric bill for home that it is crazy. Years ago the irs cut back on people being able to deduct a gazillion every day things for a home office that doubled as a kitchen table (or rather a kitchen table that doubled as a home office) so unless you turn your lights on only when you are working on mystery shopping and do not even step into the building that your electric bill is for unless you are working you cannot do it. If you had a dedicated room you used for nothing else EVER and shopped full time you might make a case for deducting a small percentage of these things but it is probably not worth the time effort and money to fight the irs over it.

If you are required to make a purchase and they say they will only reimburse $1.00, rather than buying something you don't need, go ahead and purchase what you want - as long as it is a "reasonable" amount. If you buy a $3 soda, you can still claim the excess $2 as an expense. If you buy a $20 phone charger, then the excess $19 is NOT deductible since it is an unreasonable amount of overage.

Just keep good records and be able to have proof of every deduction. Need a second cell phone that you'll use exclusively for shopping? The full cost would be deductible. I work from home and deduct all of my shopping mileage whether it is my first trip of the day or the last. Here's an example of why I rationalize that even though some others will say it is wrong: Suppose you only have one secret shop today. It pays a decent fee and has a mileage bonus because it is 60 miles away. You should always be able to deduct the 120 miles as an expense! (And it will probably end up showing a loss for the shop!) Now let's say it's another day and the single shop is only 30 miles away - what is different about that where you can't deduct the 60 miles? And then the next day your only shop is the McDonald's 2 miles away - yes, you should be able to deduct the mileage for those 4 miles!

I know there are some lurking around the corner ready to ounce on my answer, but there are no hard and fast rules - the IRS publishes "Guidelines"...

I have separate things exclusively for shopping. My home office has a hardwired internet connection so I don't get on it while outside of the office. I also have an exclusive phone, laptop, tablet, and camera for shopping that I depreciated on my schedule -- but none of them are high tech or fancy. I got cheap things that get the job done efficiently.

The one thing I did do a percentage of was the dash cams because I'm guilty of using those all the time. Since I log every single mile that I drive, including leisure trips, I deducted a percentage of the cam. My job provided a vehicle and bus service once I'm there so not too hard to excel the math in spreadsheet.

We moved twice last year and I am missing records for Person to Person and Maritz. Trying to get those together so I can finish filing. I have all my sheets but also hardcopy the locations and shop details.

MariettaGuy, I can't imagine any of us who work at home having an issue with your mileage advice because it is what we do. My trips to mystery shops and home are all deductible mileage. I do not deduct mileage for side trips for personal shopping.

While you may be correct about going over the reimbursement, I only deduct exactly what is reimbursed. Most of the time there is something that can be purchased for less even if the reimbursement is only a buck. That means when I buy a Starbucks Double Shot at the gas station, the extra $2.50 is on me or I stick to something below a $1. IMO, it is not worth the potential headaches over a few bucks here and there.

Workers who earn at least $5,200 in Social Security-covered employment (or self-employment) during 2017 will receive the maximum four coverage credits for the year.

Edited 1 time(s). Last edit at 03/03/2018 09:35AM by pateruski.

@walesmaven wrote:

First the easy stuff... You cannot just take a write off for electricity because it is needed to make reports. If that is what the adviser told you, run like hell from that adviser. If, and only if, you take a home office deduction you can claim PART of your utilities as part of that. But be forewarned: when you sell your home that deduction will be "recaptured".

This is true, and you can only take a portion of your utilities when you show a profit after all of your regular deductions. You can't use a utilities deduction against your gross income, only against your net after all other expenses. You can, though, take your percentage for a home office, but that, too, will be recaptured when you sell. If you have a dedicated room that's just used for your office, though, I think it's worth it to take the deduction. You won't get burned in an audit as long as that room is legitimately a home office. I can't take mine in this house because it's carved out of part of our family room, but I could in our last house because it was separate and used solely for my business. I can, though, take my room that I used for my inventory (for my other business) because that's all it's used for.

I'm really glad I found this. So... I started using www.freetaxusa.com a few years ago and as far as I can tell, it does the job. You can however, claim near anything. I usually depreciate the phone cost but not the bill. I guess I missed that advantage. I do depreciate utilities and the percent of the house I use for MSC. Same for laptop and car by percent. Everything I'm doing is in line with what freetaxusa is suggesting. I don't have any flags when I submit and I get my refund as soon as direct deposit is allowed after child tax credit delay. I'm curious to review my procedure because I would like to go to a tax professional next year as a mystery shop. I saw a shop this past week and thought I could probably hold out for it next year.I just don't want to go into it without decent preparation. I'm normally a show box record keeper. I keep my receipts in separate envelopes for reimbursement and gas/maintenance. Things like electric and internet bill I just check online in the moment but I could print it just the same. Something worrying me is going into a tax filing mystery shop with all the mystery shopping documents. Is that not going to be a huge glaring red flag that I'm a mystery shopper and plausibly on the job in the moment? Is that a problem? I saw on freetaxusa I can literally name a business to report 1099 income. I guess that's the ideal method? Don't report each company by name but instead roll them all into one and call it "side hustle" with one schedule C attachment? Looking for advice and glad to have picked up a few filing tips while reading. Thanks.

In theory, once you leave your job to mystery shop you are able to take the mileage from your normal job all the way home as long as it involves mystery shopping.

Reimbursements are never taxed. But I recommend that you keep track of everything on a spreadsheet so if you do get a 1099 at the end of the year, you can figure it out and have the MSC fix it. (sorry for the horrible sentence.)

I have a workbook that has all the companies I work for and the first sheet has all the info for all the work I've done. I keep track of everything. This year I have reimbursements, special expenses and bonuses that I need to keep an eagle eye on.

I write off equipment. I had to have a new GPS unit, wrote it off. This year I bought video equipment, writing it off. I have travel expenses for this year, I will try to write off next year.

As a person who used to prepare taxes professionally, I recommend that you set up spread sheets As a former tax professional I wanted more information than not enough when I did returns for people that were paid with 1099's. I didn't care if it came through a spreadsheet or in shoe boxes. My job was to save my clients every single penny I could.

Vehicle expenses, keep track of all your mileage and your other expenses. I normally recommend taking the mileage, because if you depreciate...you'll pay that back when you replace the car.

I never recommended taking anything off the house bills or the house computer. It's a pain for you, the person who prepares your taxes and the IRS loves to tag it.

I haven't prepared taxes professionally for years, so please take my advice with a grain of salt. I'm not up on all the rules.

Hope I could help.

MA

Thank you M.A. I appreciated all the responses posted here and from this post I improved my way on documenting all my stuff, so for next year I'll be less overwhelmed. I haven't done my taxes yet....bought a hpuse almost towards the end of year and bank screwed up on the 1098 and will be sending a corrected version. i'm so glad I did not submit my tax return yet. Thanks everyone for all the tips and tricks.

@prepmaster wrote:

and car by percent.

This is almost always the worst way to do it. Not only do you have to keep track of your MS mileage in order to show the percentage of expenses but then you also have to keep up with all of the expenses AND 999 time out of 1000 you end up with a lower deduction.

In a couple of months, I will be moving into an extended stay hotel, where I will live for several months as a transition from one permanent home to the next.
It will be my only housing. I will need to run my business from a part of the suite. I am wondering if on a square footage/percentage of square footage basis, I can claim that as a home office? which it is, actually.

@BarefootBliss wrote:

In a couple of months, I will be moving into an extended stay hotel, where I will live for several months as a transition from one permanent home to the next.
It will be my only housing. I will need to run my business from a part of the suite. I am wondering if on a square footage/percentage of square footage basis, I can claim that as a home office? which it is, actually.

I would say yes, because of the situation. But as I've said in the past, I'm not an expert anymore. This is a situation where you need to interview tax professionals and I'm not talking about the ones that sit in a Wal-Mart. This requires a solid answer from a CPA and/or a tax attorney that specializes in taxes, not all do.

It will be in your best interest to find out. So far my CPA & attorney can't tell me squat for next year. I'll take that back, they told me how much I will get for mileage.

I've done a lot of reading recently on this topic, much of it helpful, some of it contradictory.
The new tax laws are changing some things and they definitely favor the self-employed and in particular, home-based businesses.
Once tax season passes, expect the professionals to have more time to devote to clearing the air for 2018 and beyond.
I am very surprised that some sharp-minded tax pro has not already compiled a short e-book for mystery shoppers. The rules would be the same as those for most self-employed business people, but that pro could tailor their advice and examples toward the average MSer.
I would bet it would sell lots of copies. There are opportunities to be found every day.