I'm trying to get a head start and prepare myself for the tax season. Can you include the difference between what is reimbursed and what you spent as a deduction? Also for items that are reimbursed how does that impact taxable income from the MSC's

Reimbursements are not taxable income, but they might be reported in the total on the 1099-MISC/1099-NEC from the MSC. In that case, you would have to put in the appropriate deductions on schedule C.

I include the difference between what I spent and what was reimbursed as an expense. For example, if I'm reimbursed $14.20 but the required order costs $15, the unreimbursed $0.80 is a deductible expense. However, if I am reimbursed $14.20 and spent $50 to feed my entire family, the unreimbursed $35.80 might not be considered an "ordinary and necessary" expense...

There is probably no "might" about that unreimbursed $35.80. If the required food item(s) for the required one diner(you) totaled $16.00, but only $15.00 is reimbursed, then all $16.00, but nothing more, is deductle. But you got $15.00 back from the MSC as reimbursement, so you deduct $1.00 as a required business expense. But, having your family fed on that shop is NOT a legitimate business expense, since only one person, you, was required by the guidelines.

I wouldn't count the $35.80 as a deductible expense personally, but I said "might" because people get creative about their expenses

Something that's not as black and white is if I turn a Kroger shop into a regular grocery trip and spend $16. I am required to spend more than $9, but I only get reimbursed $9. Personally, I count the other $7 as a deductible expense, although I usually only total $11 or $12, not $16

Edited 2 time(s). Last edit at 11/19/2021 09:06PM by boridi.

So hypothetically speaking if I filled up my gas tank on a gas station shop but am only reimbursed up to two gallons or $5.00, the remaining portion that isn't reimbursed is deductible? Is it deductible if I use my car largely for mystery shopping? what about other expenses like printing, etc.

No. You are not required to fill up your tank. However, if you are required to buy two gallons of gas, and that gas costs $3.50 per gallon = $7.00, then you can deduct $7 - $5 = $2 as a non-reimbursed business expense.

Expenses for your car are calculated at $0.56 per business mile driven. That is the IRS rate for 2021. You can also add up all expenses for your car for the year (depreciation, gas, oil, repairs, insurance, etc.) and divide by the total miles you drove in the year (business and personal) to get your cost per mile. If it exceeds $0.56, use that rate instead.

Items such as printing, postage, tape and other office supplies required to run your business are deductible on Schedule C as well. There are other categories as well. This topic has been discussed every April.

@ddunn07 wrote:

So hypothetically speaking if I filled up my gas tank on a gas station shop but am only reimbursed up to two gallons or $5.00, the remaining portion that isn't reimbursed is deductible? Is it deductible if I use my car largely for mystery shopping? what about other expenses like printing, etc.

@ddunn07 wrote:

So hypothetically speaking if I filled up my gas tank on a gas station shop but am only reimbursed up to two gallons or $5.00, the remaining portion that isn't reimbursed is deductible? Is it deductible if I use my car largely for mystery shopping? what about other expenses like printing, etc.

If you put more than two gallons or $5,00, or whatever the guidelines state you "must" purchase, the rest is not deductible--because you chose to put in more. It wasn't a necessary expense. With auto expense, you generally would deduct mileage and not actual expenses. It's either/or, and most ICs do better with the mileage deduction.

So, keep track of your mileage every time you go on a shop. That will be deductible at whatever the current IRS allowance is.

You can deduct office expenses for that portion that's directly used for your business. If you go through, e.g., $100 of ink/month, but only half of that printing is for mystery shopping, you can only deduct 50%. Same with the paper you use and other supplies you buy. Obviously, you're not going to count paper clips or staples--LOL--but figure out the proportion of office supplies you use for mystery shopping and when you total the amount, take that percentage of the total as a deduction. If you spend an entire workday doing mystery shopping and stop for lunch, keep the receipt; you can deduct 50% of that as a business expense. (Some people here disagree with that, but I've checked this with my well-qualified and very experienced tax guy, and he assures me it's a legitimate expense. The IRS doesn't expect you to go without eating for hours on end, nor does it expect you to pack a lunch in a cooler if you're going to be on the road for hours. Plus, of course, sometimes you end up being on the road for a lot longer than you expected, and you need to eat!)



Edited 1 time(s). Last edit at 11/20/2021 02:59PM by BirdyC.

Thanks, i had no idea that a meal in an entire route o n a shopping day could be deductible.

Only 50% of it is, but that's better than 0%, right? LOL.

"Expenses for your car are calculated at $0.56 per business mile driven. That is the IRS rate for 2021. You can also add up all expenses for your car for the year (depreciation, gas, oil, repairs, insurance, etc.) and divide by the total miles you drove in the year (business and personal) to get your cost per mile. If it exceeds $0.56, use that rate instead."

Be aware that you CANNOT do this one year and use a different method the following year! (Unless you use a totally different vehicle the next year.) You may either use actual expenses OR the government rate.

@ceasesmith wrote:

Be aware that you CANNOT do this one year and use a different method the following year! (Unless you use a totally different vehicle the next year.) You may either use actual expenses OR the government rate.

Yup!

I think, but am not sure, that you can convert your auto from mileage deduction to expense deduction (on the same car) if you end up using it to the extent that it's better to claim expenses--but, as you say, you can't switch back again. Maybe that's been changed, though. You'd definitely know that better than I would. I've never used expense deduction; mileage has always been better for my situation.

If you use actual expenses, you are required to depreciate the vehicle. Upon sale, the depreciation can be taxable income. For example, say you buy a new car, use it for business, expense the depreciation to zero, and sell the car for $15,000. That $15,000 could very well be fully taxable as "recovered" depreciation.

And no, you can't switch from actual to mileage; whichever method you choose the first year of ownership, you are stuck with for the life of the car.

However, tax laws change all the time, and there's no reason to believe this is a permanent thing!

@ceasesmith wrote:

And no, you can't switch from actual to mileage; whichever method you choose the first year of ownership, you are stuck with for the life of the car.

However, tax laws change all the time, and there's no reason to believe this is a permanent thing!

I didn't know that was a current IRS rule; thanks for the info! A decade or two ago, one of my tax accountants told me that I could switch my vehicle from mileage to expense deduction, but could only do that switch once. That's obviously outdated at this point!

Yup, Ceasmith is correct.

@walesmaven wrote:

Yup, Ceasmith is correct.

I assumed she was; my info is old. And she's definitely more knowledgeable about tax stuff than I am (as you are, too). I just go by my past zillion years in business for myself and what my tax guys tell me. Some info that comes up here is stuff I haven't had occasion to ask them about in ages, if at all.

I think this information is not correct. You can switch back and forth every year. Certain minor caveats apply, such as you must take the standard mileage the first year if you want to be able to switch back and forth, and you can't have previously taken bonus or accelerated depreciation.

[www.irs.gov]
"If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses."

Gotta chuckles reading through this. While normal people like us debating over a few dollars and pennies for tax, some people use our tax money in Trillion for foreign entities and ultimately back to their pockets. We talk penny. They talk trillion.

KV the reason we talk pennies is because that pretty much sums up how much we earn on each job. So pennies are important.
I did want to comment on what I think of as the max reimbursement in the meal example given above. If i eat and can be reimbursed for a meal up to $15 and my bill is $16 because, for instance, I ordered the large fries when ordering the small or medium fries would have been acceptable and would have been $15, I would not deduct the extra dollar. It would only be when due to high sales taxes or due to nothing that I was allowed to order on the menu would cost $15 or less that I would deduct the excess over the re paid reimbursable amount. Perhaps I am wrong about this but I think that is the way it should be done.

Thanks. I stand corrected!

But I sure as heck wouldn't want to do the bookkeeping involved in switching back and forth!!!

@mystery2me wrote:

I think this information is not correct. You can switch back and forth every year. Certain minor caveats apply, such as you must take the standard mileage the first year if you want to be able to switch back and forth, and you can't have previously taken bonus or accelerated depreciation.

[www.irs.gov]
"If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses."

My tax guy used to ask me every year what my expenses were for my car--so he could determine what was the most advantageous way for me to go (and I thought he had said once I switched I couldn't switch again til I got a new car). But he hasn't asked me that in years, so I assumed that cease and wales were correct. My tax guy must figure, based on my history, that my car expenses aren't enough to try to figure out which way to go.

Things can get confusing with the IRS. That's why I hire somebody to do my taxes!



Edited 1 time(s). Last edit at 11/24/2021 03:19AM by BirdyC.

@sandyf wrote:

KV the reason we talk pennies is because that pretty much sums up how much we earn on each job. So pennies are important.
I did want to comment on what I think of as the max reimbursement in the meal example given above. If i eat and can be reimbursed for a meal up to $15 and my bill is $16 because, for instance, I ordered the large fries when ordering the small or medium fries would have been acceptable and would have been $15, I would not deduct the extra dollar. It would only be when due to high sales taxes or due to nothing that I was allowed to order on the menu would cost $15 or less that I would deduct the excess over the re paid reimbursable amount. Perhaps I am wrong about this but I think that is the way it should be done.

Five Guys says they prefer we order a burger, so I think it is reasonable to order a burger (instead of hot dog or grilled cheese) and deduct the portion over the reimbursement limit.

Edited 2 time(s). Last edit at 11/24/2021 12:02PM by boridi.

Your required expenses should be deductible. Also see Form 8995 wherein you deduct your QBI (qualified business income). It is a 20% deduction which will more than negate the self employment tax.

@boridi wrote:

@sandyf wrote:

KV the reason we talk pennies is because that pretty much sums up how much we earn on each job. So pennies are important.
I did want to comment on what I think of as the max reimbursement in the meal example given above. If i eat and can be reimbursed for a meal up to $15 and my bill is $16 because, for instance, I ordered the large fries when ordering the small or medium fries would have been acceptable and would have been $15, I would not deduct the extra dollar. It would only be when due to high sales taxes or due to nothing that I was allowed to order on the menu would cost $15 or less that I would deduct the excess over the re paid reimbursable amount. Perhaps I am wrong about this but I think that is the way it should be done.

Five Guys says they prefer we order a burger, so I think it is reasonable to order a burger (instead of hot dog or grilled cheese) and deduct the portion over the reimbursement limit.

They used the word prefer which indicates to me they do not require that. If they truly wanted you to order a burger they should compensate you for one. I would think the fine dining places I have been to would prefer I order two steaks/seafood entrees instead of the pasta or low end chicken they reimburse for. And probably would prefer you order the two allowed drinks per person to be mixed drinks with an expensive upsell. But these are all choices and although the chance of someone being audited due to an extra dollar taken as deduction here and there is small to me is not worth the hassle of an audit for someone who does it consistently.

@sandyf wrote:

They used the word prefer which indicates to me they do not require that....

... But these are all choices and although the chance of someone being audited due to an extra dollar taken as deduction here and there is small to me is not worth the hassle of an audit for someone who does it consistently.

Agreed. If they stated you "must" order a burger, then whatever you went out of pocket in order to get that burger would be deductible. But you don't have to, so it's a choice you make.

As sandyf says, it's not worth it to take that extra buck or so as a deduction--even if the risk of an IRS audit is slim to none. Plus, it's you being honest with yourself, too. We know we don't "have" to order that burger. Now, if we order the cheapest items on that menu and are still over the reimbursement, then I think the deduction is justified. Obviously, in this specific case, it doesn't amount to a hill of beans, but there must be cases in which the reimbursement (for meals, purchases, whatever) doesn't cover the minimum required expense, and the out-of-pocket expense is significant enough to claim as a deduction.

On Schedule C there is room to deduct the costs of a professional conference, including travel, for "continuing education." Conference costs should be wholly deductible.



Edited 1 time(s). Last edit at 11/24/2021 10:33PM by walesmaven.

@walesmaven wrote:

On Schedule C there is room to deduct the costs of a professional conference, including travel, for "continuing education." Conference costs should be wholly deductible.

When I sold real estate, all of our costs related to our mandatory continuing ed courses were deductible. Even if the course were in our own town, if it were an all-day one, lunch was deductible (up to the IRS limitations).

Sometimes I think that ICs don't always realize just how much is deductible against income and worry about paying gobs of $$ in taxes. Doesn't usually work that way.

@KV wrote:

Gotta chuckles reading through this. While normal people like us debating over a few dollars and pennies for tax, some people use our tax money in Trillion for foreign entities and ultimately back to their pockets. We talk penny. They talk trillion.

I agree with the sentiment, The trillions we throw away unaccounted for on foreign occupations should stop. But for many of us, vehicles expenses account for hundreds or even thousands of dollars off of our tax bills, so it is kind of a big deal.

There are so many variables. I go to my accountant and let her figure it out. For gas, you will get the federal deduction for your mileage. Make sure to keep track of all miles you drive for this type of work.

Nice thread. There is no one piece of advice that fits all except: keep it legal. We still use mileage because it is still the best method for us until the end of this year. Next year, it might be better to switch; Tax Guy will let us know how best to proceed, based upon changes in our work and vehicle use.

I use and app that swipes my accounts and asks me how to categorize the money. That way I don’t have to keep receipts. The IRS does not require receipts just documentation of the transaction. Keeping it digital is much easier.