Taxes Question

Hi all, does anyone report their reimbursement as part of their income when you file taxes? I’ve always only considered fees as income, not reimbursement, but now I’m hearing otherwise and want to check what you all do.

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More About Mystery Shopping Taxes

Reimbursements are not taxable.

I claim every penny remitted to me--fees and reimbursements--then subtract out the reimbursements as an expense.

That is my understanding but we are now being told differently. Do you happen to have any tax code for me to reference in our appeal?

I would suggest you read IRS Pub 535 for yourself if you are uncertain. Realize that mostly it is thinking about reimbursing your employees for money they spend, but if you pull it back to having no employees but yourself, you will have your answers.

What are you appealing?

@LindaM wrote:

That is my understanding but we are now being told differently. Do you happen to have any tax code for me to reference in our appeal?

What are you being told differently?

....The easiest example I understand it is ACL shops with reimbursement only shops. Excluding other expenses such as mileage for commuting to and from the shop location, let’s say your reimbursed expenses is $200. ACL sends you a check of $200. $200 revenue per ACL’s pay minus $200 expenses for completing the work = $0 net profit aka $0 taxable income. Let’s say that same shop had a $5 fee but $200 reimbursed expenses. Only $5 would be taxable as $5 would be your net profit (excluding other tax incentives like mileage).

Shopping the Greater Denver Area, Colorado Springs and in-between in Colorado. 33 year old male and willing to travel!

Edited 1 time(s). Last edit at 01/29/2020 08:48AM by Tarantado.

You should get a 1099 Misc from the company.
Mine only states the commissions not the reenbursements

Rodske, some MSCs include reimbursements on the 1099; some do not.

It's really up to us to keep adequate records to support whichever method we use.

It would also be useful to know who and for what reasons they are telling you that reimbursements are taxable. If you are filing a Schedule C for your 'business' you get business deductions that are not available if you just claim the income as a hobby. If you are using a store front 'tax preparer', they may be trained for simple, straightforward returns but not to the depths to handle self employment, securities transactions, home sales, etc.

Flash has hit the nail on the head (as usual) ! Many tax preparers are not properly trained to understand the difference between Schedule C tax laws and how hobby proceeds are treated. Some even think that MS can ONLY be treated as a hobby, not as a business.

And, some shoppers who have posted here, predicting fire and brimstone, also have not understood that important distinction.

Based in MD, near DC
Shopping from the Carolinas to New York
Have video cam; will travel

Poor customer service? Don't get mad; get video.

Thank you for all the information.

Find a CPA that does tax work all year long. Because truthfully as a business owner we should file quarterly.

@2stepps wrote:

Find a CPA that does tax work all year long. Because truthfully as a business owner we should file quarterly.

I assume you mean quarterly installments towards our final tax liability rather than quarterly tax returns. Lets not muddy the waters where there is already obvious confusion.

The vast majority of shoppers will not make enough profit in a year, if they are filing as Schedule C businesses and taking their allowed business deductions, to incur substantial additional tax liability. If shopping is their sole source of income they may owe self-employment taxes but are unlikely to have other taxes even if they take the standard deduction. If they have some other source of income they most likely are having money withheld for taxes and as long as what is withheld is at least as much as their total tax liability the previous year, they will not be subject to underpayment penalties.

As someone who has been audited by the IRS (2015) and was 'successful' I can tell you that reimbursements are not taxable.

I include every penny that comes in and then deduct required purchases. I was required to send in copies of every receipt as well as my mileage logs. The IRS then sent a letter stating that no changes were needed to my 2015 taxes and basically 'have a nice day'.

A perfect illustration of why "contemporary" AND detailed record keeping is an absolute MUST.

Hi. Does anyone know of any mystery shopping company who has an income tax return shop in 2020?

Did you track miles to mystery shops and back home? Did you do quarterly taxes? Just not sure how this works and you said your mileage log passed an irs audit.

As long as everyone is asking tax questions....................
Restaurant shop pays $75.00 if I have a tab of $58.00 or $82.00. Instructions call it 'pay' not 'reimbursement'.
Do I pay taxes on $75.00 and end up with less profit from the shop?

@Rho* wrote:

As long as everyone is asking tax questions....................
Restaurant shop pays $75.00 if I have a tab of $58.00 or $82.00. Instructions call it 'pay' not 'reimbursement'.
Do I pay taxes on $75.00 and end up with less profit from the shop?

You report the flat rate as income and you deduct the dinner bill (and other expenses, like mileage and parking) as expenses. Both numbers end up on you tax return. So ultimately you pay taxes on the difference if you were paid more than you spent and get a write-off toward other income if it's the other way around.

So using your number (and assuming you had no other expenses for the excursion which probably ISN'T true) if you bill was $58, you pay taxes on $17. If it was $82, you have a loss of -$7 that can offset some other income.

Edited 1 time(s). Last edit at 02/14/2020 08:00AM by JustForFun.

Thank you for the reply JustForFun. The bill and tip were less than the amount paid to me. Expenses were driving 5 miles each way to the free parking lot. There was so much food I took some home for the next days lunch.

I'm rather timid about expenses. There's a company (not on the list here) that requires I mail in paperwork. I keep telling them NOT to reimburse postage because it gets added to my paychecks. Last year I realized it was a whopping $4.28 postage. So not worth itemizing as a reimbursement.

@JustForFun wrote:

@Rho* wrote:

As long as everyone is asking tax questions....................
Restaurant shop pays $75.00 if I have a tab of $58.00 or $82.00. Instructions call it 'pay' not 'reimbursement'.
Do I pay taxes on $75.00 and end up with less profit from the shop?

You report the flat rate as income and you deduct the dinner bill (and other expenses, like mileage and parking) as expenses. Both numbers end up on you tax return. So ultimately you pay taxes on the difference if you were paid more than you spent and get a write-off toward other income if it's the other way around.

So using your number (and assuming you had no other expenses for the excursion which probably ISN'T true) if you bill was $58, you pay taxes on $17. If it was $82, you have a loss of -$7 that can offset some other income.

I don't believe we can count it as a loss if we spend more than the reimbursement for the meal.

@Niner wrote:

@JustForFun wrote:

@Rho* wrote:

As long as everyone is asking tax questions....................
Restaurant shop pays $75.00 if I have a tab of $58.00 or $82.00. Instructions call it 'pay' not 'reimbursement'.
Do I pay taxes on $75.00 and end up with less profit from the shop?

You report the flat rate as income and you deduct the dinner bill (and other expenses, like mileage and parking) as expenses. Both numbers end up on you tax return. So ultimately you pay taxes on the difference if you were paid more than you spent and get a write-off toward other income if it's the other way around.

So using your number (and assuming you had no other expenses for the excursion which probably ISN'T true) if you bill was $58, you pay taxes on $17. If it was $82, you have a loss of -$7 that can offset some other income.

I don't believe we can count it as a loss if we spend more than the reimbursement for the meal.

Unless your scope of work for your shop limits you to spend more than the reimbursement limit (or total fee for jobs that offer only lump sum fees to cover the work) in order to meet Acceptance by your client (the MSC).

Shopping the Greater Denver Area, Colorado Springs and in-between in Colorado. 33 year old male and willing to travel!

@Niner wrote:

@JustForFun wrote:

@Rho* wrote:

As long as everyone is asking tax questions....................
Restaurant shop pays $75.00 if I have a tab of $58.00 or $82.00. Instructions call it 'pay' not 'reimbursement'.
Do I pay taxes on $75.00 and end up with less profit from the shop?

You report the flat rate as income and you deduct the dinner bill (and other expenses, like mileage and parking) as expenses. Both numbers end up on you tax return. So ultimately you pay taxes on the difference if you were paid more than you spent and get a write-off toward other income if it's the other way around.

So using your number (and assuming you had no other expenses for the excursion which probably ISN'T true) if you bill was $58, you pay taxes on $17. If it was $82, you have a loss of -$7 that can offset some other income.

I don't believe we can count it as a loss if we spend more than the reimbursement for the meal.

You can if the guidelines state you must order xyz and xyz cost more than the reimbursement.

@Jennifer39 wrote:

Did you track miles to mystery shops and back home? Did you do quarterly taxes? Just not sure how this works and you said your mileage log passed an irs audit.

First, you only file your taxes once a year. Doesn't matter if you are employed getting a W-2 or filing schedule C for self employment. You are probably meaning sending in quarterly tax payments. I personally do not do this as my husband has a W-2 job and his withholding more than covers our joint liability.
My mileage log is a spiral bound notebook (12 of them, one for each month) that I write the date, number of miles to shop/shop address/number of miles to the next stop or home. I put the odometer start/finish on the first and last page of the month.

@Niner wrote:

@JustForFun wrote:

@Rho* wrote:

As long as everyone is asking tax questions....................
Restaurant shop pays $75.00 if I have a tab of $58.00 or $82.00. Instructions call it 'pay' not 'reimbursement'.
Do I pay taxes on $75.00 and end up with less profit from the shop?

You report the flat rate as income and you deduct the dinner bill (and other expenses, like mileage and parking) as expenses. Both numbers end up on you tax return. So ultimately you pay taxes on the difference if you were paid more than you spent and get a write-off toward other income if it's the other way around.

So using your number (and assuming you had no other expenses for the excursion which probably ISN'T true) if you bill was $58, you pay taxes on $17. If it was $82, you have a loss of -$7 that can offset some other income.

I don't believe we can count it as a loss if we spend more than the reimbursement for the meal.

It is the nature of business that some jobs will loose money and others will make money. The IRS doesn't care if one job or another earns or loses money. They only care about the period profit or loss. And even an occasional losing year isn't a concern to the IRS, as long as a certain number / proportion of the last several years are in the black. Miss THAT mark and they'll re-categorize your business as a hobby. But overspend on one job? They'll never know or care.

Not every legitimate business activity earns a direct profit. If you take a client to dinner before they've purchased anything it is a legitimate deduction despite having no profit to show for that investment on that same evening. And if it turns out they never buy anything it is still a valid deduction.

A comment and a question since we are on the topic of taxes.
Comment.one of the companies I work for keeps sending emails that say $20 pay for this shop. The shop has been around for years and still is and has always been an UP TO $10 reimbursement and a $10 fee. That subject line is very annoying but I am mentioning it to illustrate that it does not matter what the scheduler calls it. What matters is whether they are reimbursing you for a business expense or not. The reimbursement is still not a fee.
And my tax question since this just came up and I cannot locate in search...I messed up a shop by going on the black out date (long sad story) so I am not getting the fee or the reimbursement. Am I totally out of the expense I incurred for a required purchase or can the expense for a rejected shop be written off on taxes some way? I am just grasping straws right now as I am so mad at myself for making an assumption without checking it out first.

My opinion is that you deduct the expenses.

Granted, I wouldn't claim $18,000 in income and deduct $17,399 in expenses from failed shops.

Assuming this is one shop, and that you completed many shops successfully, yes, deduct the expense.

IMHO, the costs incurred for "failed" shops are legitimate business expenses. I personally aggregate all expenses (meals, mileage, tolls, etc. and report them as expenses. I add up all revenue (fees plus reimbursements) and report that sum. That way, a $200 fine dining expense incurred in December 2019, gets counted as avTax Year 2019 expense as it should. When I (hopefully) get reimbursed in 2020, that will e recorded as 2020 revenue. Incidentally, you can not claim the ever-received fee for a rejected shop as an expense.

@sandyf wrote:

And my tax question since this just came up and I cannot locate in search...I messed up a shop by going on the black out date (long sad story) so I am not getting the fee or the reimbursement. Am I totally out of the expense I incurred for a required purchase or can the expense for a rejected shop be written off on taxes some way? I am just grasping straws right now as I am so mad at myself for making an assumption without checking it out first.

Shopping Southeast Pennsylvania, Delaware above the canal, and South Jersey since 2008

In my opinion, you are out. Let's say I contract with X company for deliverables. Although I deliver a product, it doesn't comply with the agreement terms. I don't get paid. That to me is not an expense/loss.

I like the first two ideas best. And no, even tho I live in So Cal I do not do the shops like So Cal Mama and Steve where I would rent an island or travel for pricey bar jobs. My expense was $24 for what I had to purchase for the shop.It was not something that I can return. I would not deduct the fee I did not get but at least if I can deduct the expense I did not get reimbursed for that would be helpful Two our of three so far...I will also ask my tax guy about it and see what he says but I think this may be a grey area...thanks all.

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