Tax question

My only income is from Mystery Shopping and Social Security. My Social Security is not taxable. My standard deduction for being a Senior is $14,000. I will never make $14,000 a year doing Mystery Shopping. I know I must pay Social Security and Medicare taxes as part of the Self Employment tax (Schedule C) You cannot lower those with write offs. What good is keeping track of mileage or business expenses, if they are always less than my Standard Deduction? I’m single, no children. Is there any reason for keeping track of business expenses?

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Yes. Your business expenses reduce the net profitability of your business. The lower your business income the less Self Employment tax you pay--which is paid on the net income of your business.
FlASH IS CORRECT; BUSINESS EXPENSES LOWER YOUR NET sCHEDULE c INCOME, WHICH IS WHAT sELF-EMPLOYMENT TAX TAKES AS ITS BASIS. sO, BE SURE TO KEEP TRACK OF MILEAGE AND OTHER BUSINESS EXPENSES EACH YEAR. Sorry, did not realize that caps lock was one!

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.
The confusion I had, was most sites saying reducing you GROSS income to lower your Self-employment tax was not possible. What they don't explain is your GROSS income for self-employment is actually your NET income. It's your gross minus your expenses.
Flash is correct. Self-Employment tax is paid on the net income of the business, not the gross. The Self-Employment tax rate is 15.3%. That is not insignificant at all. Averaged over many years, my mileage expenses alone are roughly 30% every year. It is certainly conceivable that your expenses reach 50% of your gross mystery shopping income. IF the gross happens to be $10,000 for ease of calculation, 50% is $5,000. On $10,000, you would pay $1,530 of self-employment tax. If you can make 50% of that disappear as a business expense, you would only pay $765 and would have $765 left in your pocket. That amount is not insignificant. Let's assume that you average $15 per mystery shop, then $765 is the equivalent of 51 mystery shops.
@Flash wrote:

Yes. Your business expenses reduce the net profitability of your business. The lower your business income the less Self Employment tax you pay--which is paid on the net income of your business.

Shopping Southeast Pennsylvania, Delaware above the canal, and southwestern NJ since 2008
As a bookkeeper and 8 yr Mystery Shopper I can tell you right now living in NYC that my net income is becoming more of a loss than an income to worry about. Given that a great deal of the shops here pay nothing or close to nothing as compensation, and the reimbursement often does not even meet the cost of the requirements, most shops have become a money losing proposition. Also, no reimbursed transportation makes a loss inevitable. Never a cheap place to live, also acting as a bank waiting for reimbursement make credit card interest a factor in timing. I have no doubt the increase in gas we have seen is going to make those shops people drive 60-100 miles far less attractive.
As now PayPal is going to start sending us 1099s on what we are paid and mine will be 80-100% (or more) REIMBURSED EXPENSES it will now be even more time for bookkeeping! Figure this in when you look at your end game. 7.5% is what you pay on your net and they want it even if you are below the Federal Poverty Line on Social Security.
I am basically working for frequent flier points with no place to go!
Yes, it is going to get to the point where the IRS wonders why we are all working for $2 an hour and we hope to explain to this or pay an expensive accountant to do so.
The pandemic, inflation and implied aggressiveness of current administration looks like it is going to make Mystery Shopping, in my case at least, I job I pay to do!
But if you are losing money, the 7.5% isn't a factor at all, then. Really, if your net after expenses is ZERO, you will owe no Social Security/Self Employment tax.
When is PayPal supposed to start doing this reporting? Why isn't 1099 from the MSCs adequate?
If an MSC uses PayPal, then according to the IRS, PayPal is responsible for the appropriate 1099. You won't get a 1099 form from the MSC. Not having to issue 1099 forms (which are costly due to bookkeeping requirements, etc.) may be one reason MSCs use PayPal.
@ceasesmith wrote:

When is PayPal supposed to start doing this reporting? Why isn't 1099 from the MSCs adequate?

Shopping Southeast Pennsylvania, Delaware above the canal, and southwestern NJ since 2008
If you have been getting paid by PayPal during 2021, then you will get 1099 forms as appropriate from PayPal for 2021 income, not from the MSC.

Shopping Southeast Pennsylvania, Delaware above the canal, and southwestern NJ since 2008
I do not believe it is on 2021 income. Here is a press response from Paypal on the whole process: [newsroom.paypal-corp.com]

@myst4au wrote:

If you have been getting paid by PayPal during 2021, then you will get 1099 forms as appropriate from PayPal for 2021 income, not from the MSC.
This rule has been in effect for years. It now requires $20,000 in business transanctions and 200 or more transactions to trigger. The changes as currently considered would lower the amount to $600 and any number of transactions. It would require not just PayPal, but your local bank to report the total amount of deposits and withdrawals on a 1099-K. And it won't necessarily mean MSCs using PayPal will stop sending 1099-MISCs.
I believe some of you may have a misunderstanding between 1099-MISC and 1099-K.

To make it short - 1099-K helps to trace your money flow. But it does not mean the amount on 1099-K is either reportable or taxable. The main purpose of 1099-K is to remind you (and tell IRS) how much you have received. Just for MS alone, this amount can include reimbursement, which is not taxable.

However, 1099-MISC states your income from a payer, which is both reportable and taxable.

For those who use PayPal for MS only, while it is not a tax advice, you can pretty much ignore the 1099-K as it serves no practical purpose.
So is Paypal issuing us one big 1099? Because I get all sorts of payments and reimbursements for him rebates and such in there too. And I use it to move money around.
Paypal will aggregate all money sent to you. You are responsible for keeping good records so that you can identify MS fees, MS reimbursements, payments you make to stores, refunds from stores, etc. An MSC which pays through PayPal will not be sending you a 1099 themselves. Even for TY 2020 before the were any changes at all, MSCs which "paid" using PayPal did not issue 1099 forms directly to shoppers.
@originalinvisiblejenni wrote:

So is Paypal issuing us one big 1099? Because I get all sorts of payments and reimbursements for him rebates and such in there too. And I use it to move money around.

Shopping Southeast Pennsylvania, Delaware above the canal, and southwestern NJ since 2008
Hello! What places/people would recieve a copy of my 1099-k starting 1/1/22 tax season? Also, where would this go on your tax form? And what about the new bank rules? Are they only for bank accounts that had at least $10,000 in deposits in one year? TY, Night Owl at 4:20 pm
"Hello! What places/people would recieve a copy of my 1099-k starting 1/1/22 tax season?"

Only you and the IRS. The places that would send them include payment processors such as PayPal, Cah App, Etsy, etc., and then only for transactions classified as goods and services.

"Also, where would this go on your tax form?"

Nowhere. It does not purport to track your taxable income, only your total transactions. It is up to us to keep track of our income. In practical terms, however, if your 1099-K shows more incoming money than you report as your gross receipts, this is likely to be a red flag for the IRS. This might apply to mystery shoppers who get a high amount on non-taxable reimbursements, or to someone who cleans out their house and sells a lot of high price items on eBay, for example. This is why keeping our own accurate records is so important.

"And what about the new bank rules? Are they only for bank accounts that had at least $10,000 in deposits in one year?"

The new bank rules are only a proposal, and have not passed into law. But regarding the other entities such as PayPal, the treshhold used to be $20,000 and 200 transactions; now it is just $600 in transactions.


An added note: this does not mean MSC's will stop sending 1099-MISCs. Some may, but it will be their choice. They have had that option for years if they used PayPal. I personally rarely even look at forms when I get them in the mail - I don't need them. I already have everything recorded in a spreadsheet I use to calculate my taxes
What I have heard is that if you have deductions you need to have a business license or be registered so you can take the deduction, I would get a business Paypal account to get paid, and since you need a bank account get one at a local bank that has no monthly charges. If you do not have that you are a hobbyist, not a business and those sweet deductions go away.
@2stepps wrote:

What I have heard is that if you have deductions you need to have a business license or be registered so you can take the deduction, I would get a business Paypal account to get paid, and since you need a bank account get one at a local bank that has no monthly charges. If you do not have that you are a hobbyist, not a business and those sweet deductions go away.

It's good to have separate business accounts, but those or a license are not required to take normal deductions on Schedule C.
@2stepps wrote:

They will be for this year I have heard.

Where did you hear that? A link to your info would be helpful.
What you have heard is absolutely not true, and there's no need to get a business PP account or set up a business bank account. You can file a Schedule C and take every deduction you're entitled to without either.

@2stepps wrote:

What I have heard is that if you have deductions you need to have a business license or be registered so you can take the deduction, I would get a business Paypal account to get paid, and since you need a bank account get one at a local bank that has no monthly charges. If you do not have that you are a hobbyist, not a business and those sweet deductions go away.
I heard it somewhere on youtube so take it with a grain of salt. But that is also where I heard about the banks having to report any monthly transaction over $600 a month. That has been shut down now. Just because sleepy joe wants to make a grab for our money does not mean he will get it. He is the one that back in the 70s or 80s pushed through the civil assets forfeiture laws so that can seize your money if they think it was used for a crime depending on how aggressive the cops are.
This forum is for mystery shop advice and avoids politics. I suggest we keep it that way.
Several years ago they disallowed employees from taking deductions related to work, so that only businesses (which would also be us) could take the deductions. Perhaps this is to what they referred. More than half of businesses in the U.S. are sole proprietorships, basically meaning they are not incorporated and are owned by one person or a married couple, and a significant number of them do not have business licenses etc. If this were a real thing, people would be in the streets.
Well, on the subject of taxes, look to see if you qualify for the Qualified Business Income deduction, Form 8995. It can be a worthwhile deduction for some people.
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