Do you need to claim reimbursements on taxes, as it is really a wash....going to get taxes done, but would like a little info. on this up front.

Two schools of thought, one says don't claim and don't deduct against it. The other is claim every penny and deduct every expense whether it was reimbursed or not. IRS is not clear on the issue as it applies to us. On the recommendation of an old CPA buddy I claim everything and deduct everything. It in essence comes out to a wash, but since I have the documentation to support it, it makes more sense. (And I would hate to get into a situation where XYZ mystery shopping company indicates they paid out $375 to me in 2007 and IRS wants to see where $268 of it is only to have to explain that I didn't list it because it was reimbursements.)

True, but, if you pay cash for these Bar Integrity jobs, it is really tough to track. I don't think I make enough to really get into trouble, and I can aways prove it through credit card if I'm called on it. I use the same credit card for these transactions. Keeping it simple would be the way I'd want to go, just not deduct reimbursements. If IRS isn't clear on this, how can I be??

Speaking as a shopper here (not as any representative of any company or any expert or anything - k? , I always claim and then deduct the reimbursements. While it might be hard to track from your end if you paid cash, there is a record of it on the MS company's end and who knows when they might get audited and cross referencing might happen?

Your right, but oh what a pain....

Hi I'm completely new to the whole mystery shopping thing and that is my biggest concern...TAXES. The money that we are paid from the companies are the normal taxes (like, state, federal, FICA, etc.) already taken out? And also when doing taxes how do we list the reimbursements or file the deductions? I dont want to start getting jobs and then end up having to pay the govt. a whole lot of money just because it was never taken out in the beginning or never claimed. Please help this newbie!!!

You are an Independent Contractor and are on your own. Taxes are not taken out, you have to report and pay if you make over $600. The reimbursements are still up in the air for me, but, I'm going to have my taxes done Friday, and will know more then...stay tuned.

When you receive money as an independent contractor they do NOT take out out taxes, FICA etc. Most of the companies will not even send you a 1099 at the end of the year unless you have earned more than the minimum amount (500? 600?) in fees from this. This does NOT mean, however, that they are not claiming the fees they paid you and the reimbursements they sent you as THEIR business expenses, so this stuff is not free money.

You will file your mystery shopping as a business using a Schedule C with your regular tax return. That form has you enter all business income and deduct all business expenses. There are two ways you can file--as a "cash" business or as an "accrual" business--and once you have done it one way the first year, you must do it always the same way. I choose "accrual" which keeps all the income and expenses in the same year and it means I claim as income all fees and reimbursements for a particular year even if I don't receive the actual payment until the following year. Many folks choose to file as a "cash" business where they have what they actually receive and what they actually pay in a particular year be their income and expenses.

I claim all fees and reimbursements as income and then deduct from this total all of my expenses--the reimbursements from shops, the unreimbursed expenses, the mileage, my office supplies and equipment costs, etc. As an "accrual" taxpayer I have some leeway to purchase office supplies and equipment before the end of the year if necessary to keep my net income from my business below $400. It is in my interest to have my business make SOME money every year (IRS only requires that you have a profit 2 or 3 out of 5 years to keep this from being categorized as a "hobby" which would significantly reduce the deductions you are entitled to). It is also in my interest to have my net income from this business be LESS than $400 so I do not have to pay social security and medicare taxes on it (as a self employed person, if you have to pay social security and medicare taxes you are paying both the employer and the employee portion of those taxes so it mounts up quickly).

If you are not filing jointly with a spouse it may make sense to send in some small quarterly tax payment to IRS using their estimated payment program, but chances are that you will find your legitimate expenses, if you keep careful track of them, make your net income insubstantial. For example, it probably does not feel like it costs you 50.5 cents per mile to drive your vehicle to do shops because even if you weren't shopping you would have a vehicle and be paying insurance and licensing for it. You are more likely to think of a trip for a shop that is 8 miles away (16 round trip) as "costing you" a gallon of gas--or $4 to do the shop. IRS, however, is allowing you to deduct $8.08 as a business expense for that trip because their number includes allowance for gas, the vehicle itself, repair, maintenance, insurance, licensing and any other expenses except tolls and parking (which they will allow you to deduct separately).

Excellent info. The reimbursement part got me, thank god I only did half a year, and can figure it out. You sound like a CPA, maybe you should consult and make real money lol I hate this time of year, property taxes, business taxes, taxes up the gozoo!

Excellent info. The reimbursement part got me, thank god I only did half a year, and can figure it out. I think..

What about the BarIntegrity jobs where you pay cash...I don't think I kept the receipt, but I only did two, and no more for me. Not paying cash anymore either. You sound like a CPA, maybe you should consult and make real money lol I hate this time of year, property taxes, business taxes, taxes up the gozoo!

Geez thanks, I guess. I do enough darn tax returns every year with my handy little copy of TurboTax that I could choke. They end up being mostly extended family (that is a major Christmas present I give everybody in the family every year) and some very elderly old family friends. This the first year in a long time I haven't had to contend with somebody's disorganized file of home improvement receipts to try to figure out the cost basis in the home they sold. But I do have a ton of capital gains and losses on securities that were inherited or purchased long ago by folks to figure out all the stock splits and spin offs to work out cost basis. Its a good thing I like math and am good at it!

Thanks so much for your quick feedback. I feel a little better now in starting to be a mystery shopper. *Flash- you sound very intelligent that area of everyone's life, you are what I call a very special person b/c taxes are Greek to me. Thanks again!!

I figure we all have things that we enjoy and are good at, so we may as well do them. One of the elderly family friends I do taxes for has spent hours trying to teach me to crochet. I make these lumpy little knots of junk and just cannot get the hang of it. She crochets small things for me, I do her taxes. Different strokes for different folks.

s4u- I think it's a govt conspiracy that prop taxes are due at Christmas and at tax time


BTW- I vote for: report every penny and cover your behind!!!!!!!

Edited 1 time(s). Last edit at 03/26/2008 01:57AM by JoanG.

Joanie, I agree.....there out to get us! I don't make enough pennies to cover my behind these days.

Flash, if you can stand one more question re taxes...

When you say you have to keep your net income to $400, at the end of the year, do you mean $400 per month? Or year? This is where I am always confused.

I think that I will go ahead and purchase TurboTax.

Thanks,

Sue

I need to keep my NET INCOME from MY BUSINESS at under $400 for the year to avoid having to pay Self Employment tax. If you are at or over $400 then you must file a form SE with your return and the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

Net Income is, of course, the bottom line from your business after you have subtracted all expenses from income for the year.

Doesn't seem like much

It isn't, which is why you need to keep track of things like the mileage and other reasonable expenses to offset the income. Mileage deduction for 2008 is 50.5 cents per mile. Ignoring 8 miles round trip on a $10 shop is making $4.40 of that $10 potentially taxable that does not need to be. Claim your mileage and the potential tax for the shop is on $5.60. Did you buy a watch specifically for mystery shopping because your regular one is not digital and/or doesn't have stopwatch capability and/or doesn't have a sweep second hand? It is deductible. Buy additional memory cards for your camera to use for shops? A thumb drive to carry the Gapbuster power point presentation to the shop? A DVR to do your shops? These things are deductible.

One of the reasons that I claim my business on an "accrual" basis rather than a "cash" basis is that I can see by December 15 what my profit or loss is likely to be for the year based on the jobs I still have to do before December 31st and the expenses year to date. This allows me to buy supplies or equipment for my business before December 31st to reduce my bottom line if necessary. When you do "cash" basis you are at the mercy of what checks you receive that are dated on or before December 31st. December 2007 it was a significant upgrade of my digital camera that got me where I needed to be. Perfectly legal and standard business practice, just requires a little planning ahead. For 2008 it is likely to be a new laptop ordered and paid for in 2008 to keep the profitability down. But you only get the luxury of doing this when you don't need the fees to cover the rent and utility bills etc. and you have kept track of your expenses throughout the year so you actually know what your bottom line is looking like.

Another THANKS! to Flash!

Thank You Thank You Thank You Thank You Thank You!

Luckily, I have been saving my receipts.



Sue

Oh, and don't forget the "flat fee" shops where you are not paid a separate reimbursement but are required to make a small purchase. That small purchase is an "unreimbursed business expense". Similarly, if you are required to make a $1 purchase (for example) for which you will be reimbursed and there is nothing in the store under $5, the difference between the minimum you could spend and what you were reimbursed is also an "unreimbursed business expense". The point here being that you could not complete the shop without SOME purchase and if the least you could possibly spend was $5, then it was a necessary expenditure. This does not apply if you COULD have purchased a $1 item and by your own choice purchased a $5 item.

Hi Mr Flash, I was very enlighten by all of your wisdom. Thank God for you, my question is how do you set up your MS business, to keep track of everything. Do you know if ther is a program somewhere for purchase. Please reply.
Thank You.

Ms Laz

I have heard of folks buying programs and abandoning them because they didn't get the job done. I have heard of folks trying to adapt QuickBooks and Quicken to do it but there just aren't the kind of categories that we need. If you are comfortable using Excel, I find it is absolutely the cat's meow because you can put columns in for what you need and you can keep track of EVERYTHING. My "Workbook" in Excel has a sheet for every month and keeps track of total fees, total reimbursements, dates of shops, dates reported, payment date, payment amount, unreimbursed expenses, mileage and everything else. I then threw an additional sheet on the front of the thing that pulls through the numbers from each month so that at any time I have a snapshot of exactly where my "business" stands. I started with the form that is offered on MSFreedom.org through a Yahoo file share link and just adapted it as I went.