Tax Considerations

Are reimbursements captured as taxable income? If so, that will drastically eat into our profit each year once you factor in employment taxes (FICA/FUTA) and our marginal tax rate. I am thinking especially about dinner shops where the food is mediocre but reimburses up to $75 with a $10 fee for example. With $85 in "income", we would pay 21.3% for FICA/FUTA at $18.11 plus however much income tax from our marginal tax bracket. We would be losing money...

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The reimbursement is not considered income. On your Schedule C you either include reimbursements as income and then subtract them out as expenses or only claim that of your receipts that is fees and bonuses. Both approaches seem to work well so it is just a matter of picking the one you are most comfortable with.

I started a spreadsheet where I list each job and payment breakdown (fee vs. reimbursement). That makes it easy to sum the non-reimbursement pay when the time comes. (I also include other things to keep track of things, like date scheduled/completed and time spent/hourly rate and date of payment by MSC.) I believe I got this idea from @Flash in one of the "Welcome to Mystery Shopping" threads.

bbrates,
Also, remember that you can use Schedule C to deduct mileage costs, and other MS business expenses. All of this is self-employment income and expenses. Mileage costs will tax shelter a LOT of MS income, unless you are using a bicycle to get to your shops.

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.

There is one other thing that I have not seen mentioned. If you do a shop that has a reimbursement and it is larger than the reimbursement you really cannot claim the overage unless nothing cheaper is available. But if it is a specified product then the whole cost should be deductible. ie an Arbys shop where the sandwich and the side and the drink do come up to just a bit more than allowed. Then you can deduct the amount of sales tax that took you over. Because that is double taxation and that is a no-no.

@2stepps wrote:

There is one other thing that I have not seen mentioned. If you do a shop that has a reimbursement and it is larger than the reimbursement you really cannot claim the overage unless nothing cheaper is available. But if it is a specified product then the whole cost should be deductible. ie an Arbys shop where the sandwich and the side and the drink do come up to just a bit more than allowed. Then you can deduct the amount of sales tax that took you over. Because that is double taxation and that is a no-no.

It doesn't have anything to do with sales tax. Any unreimbursed expenses are deductible (assuming they're "ordinary and necessary" according to the IRS)

Ah yes but you have to keep track of what is reimbursed up to the limit and then what is over the limit. Arby's used to cover the overage but they do not do that since they figure that we ought to be glad to be working during the difficult times we are in. Or maybe that is the MSC since they have gotten cheap lately.

Especially if you do a lot of mystery shopping, it might be worthwhile to have a professional prepare them with you at least once. The professional can really show you all the forms you need, explain what you can and cannot deduct, etc. They might even find some ways for you to save money with other aspects of your taxes - it can be very educational..... For me, I've decided its well-worthwhile to have them done professionally every year. (The hours I spend not doing them and the confidence that they are done correctly is well worth the minor expense.) Plus, I am pretty sure that the professional has actually saved me enough money to offset the cost.

Better: If you expect a return, there is a good chance you can do them as a shop, having your expenses paid and receiving a payment.

Hard work builds character and homework is good for your soul.

Also, if you choose to do shops in more than your home state you may be required to file state tax forms in each of the.

Happiness is not a goal; it is a by-product. Eleanor Roosevelt

Kathy,
That s not generally the case. You file where you have your legal residence and the states that expect a "commuter tax" are rare.

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.

Thanks for the information. Reciprocity agreements are less common than you would think: (https://www.cpapracticeadvisor.com/payroll/news/12268412/statebystate-income-tax-reciprocity-agreements). My state has none.

I guess the moral of the story is to do you research if you choose to branch out into new terratories.

@walesmaven wrote:

Kathy,
That s not generally the case. You file where you have your legal residence and the states that expect a "commuter tax" are rare.

Happiness is not a goal; it is a by-product. Eleanor Roosevelt

I shop KS, NE, CO, OK, TX, WY, and South Dakota.

I file Nebraska. I receive the money here, I return home most nights. Heck, if you follow that specious reasoning, since all the MSCs I work for are located outside those states, I'd have to file taxes in the states where the companies are located. I'm based HERE, my earnings are taxed in my home state only.

You and Walesmaven are lucky. Last year Hubby worked for ONE DAY in Illinois (we live in Missouri), and he had to file a state tax form there. In theory, if I did any shops while visiting my children in California or Texas I would have to do the same thing.

@ceasesmith wrote:

I shop KS, NE, CO, OK, TX, WY, and South Dakota.

I file Nebraska. I receive the money here, I return home most nights. Heck, if you follow that specious reasoning, since all the MSCs I work for are located outside those states, I'd have to file taxes in the states where the companies are located. I'm based HERE, my earnings are taxed in my home state only.

Happiness is not a goal; it is a by-product. Eleanor Roosevelt

@KathyG wrote:

You and Walesmaven are lucky. Last year Hubby worked for ONE DAY in Illinois (we live in Missouri), and he had to file a state tax form there. In theory, if I did any shops while visiting my children in California or Texas I would have to do the same thing.

@ceasesmith wrote:

I shop KS, NE, CO, OK, TX, WY, and South Dakota.

I file Nebraska. I receive the money here, I return home most nights. Heck, if you follow that specious reasoning, since all the MSCs I work for are located outside those states, I'd have to file taxes in the states where the companies are located. I'm based HERE, my earnings are taxed in my home state only.

Please consult your tax professional for formal advice, but as an independent contractor based out of State X, you should not need to pay income tax to another state unless you registered for payment in that state for that one time job.

@KathyG wrote:

You and Walesmaven are lucky. Last year Hubby worked for ONE DAY in Illinois (we live in Missouri), and he had to file a state tax form there. In theory, if I did any shops while visiting my children in California or Texas I would have to do the same thing.

@ceasesmith wrote:

I shop KS, NE, CO, OK, TX, WY, and South Dakota.

Texas doesn't have a state income tax...don't think you'll be filing here

Well since we are actually 1099 recipients and not a W2 recipient we only have to file taxes from our home state. The reason that I know this is because when I was younger and could keep up with everyone I worked for a company that worked in multiple states. And I only paid taxes in the state where I lived at the time.

Hey, Mousegal you're right! I can shop in my free time during my next extended visit to Dallas.

@Mousegal wrote:

@KathyG wrote:

You and Walesmaven are lucky. Last year Hubby worked for ONE DAY in Illinois (we live in Missouri), and he had to file a state tax form there. In theory, if I did any shops while visiting my children in California or Texas I would have to do the same thing.

@ceasesmith wrote:

I shop KS, NE, CO, OK, TX, WY, and South Dakota.

Texas doesn't have a state income tax...don't think you'll be filing here

Happiness is not a goal; it is a by-product. Eleanor Roosevelt

According to the IRS website, whatever you spend (in order to do a job) is an expense. It must be required and a within-reason cost. Expenses offset Gross Income. A reimbursement is when the company gives you back the money you had to spend--per their shop requirements. Make sure your daily Net Income (Compensation less the necessary expense to perform the job) is less than your mileage expense. If your Net Income is less than $400, you do not owe taxes. Your business is considered a "hobby". A "business" exists to make "profit".

Well, I try to do mileage around 1/2 of what I make each day. Which means that MF is rarely shopped anymore because they pay too little and it has to all be done on certain days towards the middle of the month they have nothing to offer. I am slowly signing up for other MS business. I did an apartment shop today and the agent walked me all over the place. Well, it felt like it was but we only went to see the apartment that they had open. But she had picked up the wrong keys. We get to the Apt and she says that we have to go back to the office. I said no you go back to the office I'll wait right here. And it went downhill from there. But all of that aside it was a $95 dollar day that started at noon:30 and finished up about two hours ago.

@anitaplatt2 wrote:

According to the IRS website, whatever you spend (in order to do a job) is an expense. It must be required and a within-reason cost. Expenses offset Gross Income. A reimbursement is when the company gives you back the money you had to spend--per their shop requirements. Make sure your daily Net Income (Compensation less the necessary expense to perform the job) is less than your mileage expense. If your Net Income is less than $400, you do not owe taxes. Your business is considered a "hobby". A "business" exists to make "profit".

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Tax Considerations

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