writing off meals
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If it's required, yes. But in this case, an $8 fee and an $8 reimbursement offset the $16 purchase, so it's a wash. No profit, no expense. I probably wouldn't even bother claiming this at all, unless it's lumped in with a bunch of other shops from the same MSC, so you do a total in, total out accounting....
I learn something new every day, but not everyday!
I've learned to never trust spell-check or my phone's auto-fill feature.
I've learned to never trust spell-check or my phone's auto-fill feature.
Fees = income = taxed
Reimbursements are not income = not taxable
Technically the $8 fee is income and you could write-off only $8 of the $16 required purchase because the MSC is reimbursing 50% of the cost or $8.
Reimbursements are not income = not taxable
Technically the $8 fee is income and you could write-off only $8 of the $16 required purchase because the MSC is reimbursing 50% of the cost or $8.
@johnb974 wrote:
I see shops where they pay you $8 for a meal and $8 fee. If the meal you're required to order is $16, can you write off the total $16?
Sure, if you claim the whole $16 as income, write off the whole $16. If you claim only the $8 as income, write off only the $8
If the $16 choice is the least expensive choice you have than yes, you can write off the whole cost. But if there is a cheaper "meal" allowed that you did not want then I believe you can only write off the cost of the cheaper meal.
Absolutely correct.
@sandyf wrote:
If the $16 choice is the least expensive choice you have than yes, you can write off the whole cost. But if there is a cheaper "meal" allowed that you did not want then I believe you can only write off the cost of the cheaper meal.
Shopping Southeast Pennsylvania, Delaware above the canal, and South Jersey since 2008
Agree too !
For example, a shop allows you to order additional food, so you decide to splurge and add a $6 milkshake. It is allowed but beyond the purchase requirement so the $6 cannot be written off.
For example, a shop allows you to order additional food, so you decide to splurge and add a $6 milkshake. It is allowed but beyond the purchase requirement so the $6 cannot be written off.
@myst4au wrote:
Absolutely correct.@sandyf wrote:
If the $16 choice is the least expensive choice you have than yes, you can write off the whole cost. But if there is a cheaper "meal" allowed that you did not want then I believe you can only write off the cost of the cheaper meal.
The exception to what posters including myself have stated so far would be if you were traveling. You can write off certain meals while traveling, but not any of the cost that is reimbursed by the MSC.
The $16 just barely covers the cost of the meal.
You can do JITB meals with tacos for $10. Might not be the best choices on the menu, but it's possible. PLUS, coupons or promotional offers work too.
I disagree. The fee is the revenue, no matter what. Whether you treat the reimbursement as revenue is an accounting choice that's up for debate. An that affects whether your cost of services will be the full meal price ($16) or just the unreimbursed portion ($8). You can book $8 in revenue, $8 in reimbursed expenses, and the remaining $8 would be an un-reimbursed expense to your business. Whatever recognition/treatment you use, you just have to be consistent. I'm going to use a $9 reimbursement just so we don't confuse eights... So a $8 fee, $9 reimbursement, meal is $16.
Method 1 - Recognize everything as revenue:
On your P&L
Sales = (8+9 = 17) = 17
Cost of services = (16)
Profit = 1
Method 2 - Bill the MSC the fee. Reimbursement transaction is kept separate, you have other costs of services:
P&L
Sales = 8
Cost of services (16-9) = 7
Profit = 1
In your accounting/journal entries
Reimbursable Expenses = 9
Cash received = 9
Note that both methods lead you to the same profit, and you'll be paying the same amount in taxes on the profit. The difference to note is that your 'business' looks bigger with Method 1, because you have more in sales/billable service than with Method 2.
Method 1 - Recognize everything as revenue:
On your P&L
Sales = (8+9 = 17) = 17
Cost of services = (16)
Profit = 1
Method 2 - Bill the MSC the fee. Reimbursement transaction is kept separate, you have other costs of services:
P&L
Sales = 8
Cost of services (16-9) = 7
Profit = 1
In your accounting/journal entries
Reimbursable Expenses = 9
Cash received = 9
Note that both methods lead you to the same profit, and you'll be paying the same amount in taxes on the profit. The difference to note is that your 'business' looks bigger with Method 1, because you have more in sales/billable service than with Method 2.
@BirdyC wrote:
If it's required, yes. But in this case, an $8 fee and an $8 reimbursement offset the $16 purchase, so it's a wash. No profit, no expense. I probably wouldn't even bother claiming this at all, unless it's lumped in with a bunch of other shops from the same MSC, so you do a total in, total out accounting....
Yes, you're allowed to do it either way, as I posted earlier. But in this case, I think it's fine to just consider it a wash and not bother including it in your accounting, unless that shop is part of a number of shops for the same MSC, so the numbers are totaled for revenue and expenses. And/or if you're trying to make your figures match the MSC's exactly (which rarely happens, in my experience). Of course, if the fee and required purchase result in either a loss or a profit, you must report it.
@tgooberbutt wrote:
I disagree. The fee is the revenue, no matter what. Whether you treat the reimbursement as revenue is an accounting choice that's up for debate. An that affects whether your cost of services will be the full meal price ($16) or just the unreimbursed portion ($8). You can book $8 in revenue, $8 in reimbursed expenses, and the remaining $8 would be an un-reimbursed expense to your business. Whatever recognition/treatment you use, you just have to be consistent. I'm going to use a $9 reimbursement just so we don't confuse eights... So a $8 fee, $9 reimbursement, meal is $16.
Method 1 - Recognize everything as revenue:
On your P&L
Sales = (8+9 = 17) = 17
Cost of services = (16)
Profit = 1
Method 2 - Bill the MSC the fee. Reimbursement transaction is kept separate, you have other costs of services:
P&L
Sales = 8
Cost of services (16-9) = 7
Profit = 1
In your accounting/journal entries
Reimbursable Expenses = 9
Cash received = 9
Note that both methods lead you to the same profit, and you'll be paying the same amount in taxes on the profit. The difference to note is that your 'business' looks bigger with Method 1, because you have more in sales/billable service than with Method 2.
@BirdyC wrote:
If it's required, yes. But in this case, an $8 fee and an $8 reimbursement offset the $16 purchase, so it's a wash. No profit, no expense. I probably wouldn't even bother claiming this at all, unless it's lumped in with a bunch of other shops from the same MSC, so you do a total in, total out accounting....
I learn something new every day, but not everyday!
I've learned to never trust spell-check or my phone's auto-fill feature.
I've learned to never trust spell-check or my phone's auto-fill feature.
I'm not sure what context you're using with "Income," so I will be super-precise.
Fees, net of out of pocket, unreimbursed expenses, are taxed.
$8 fee - $8 unreimbursed expenses = 0 profit ====> $0 gets taxed.
OR
$16 that you 'charge the MSC' - $16 in unreimbursed expenses (because you treated the $8 reimbursement as revenue) = 0 profit =====> $0 gets taxed.
If you set up your mystery shopper services as a company, you can also have other operating expenses related to your professional development, training, research, and travel. There's a lot of grey area there. For example, if in your professional opinion, you need to purchase a $20 meal in order not to get called out as a mystery shopper, then that additional ($20 - 8 = $12) arguably can be an operating expense. If you messed up a shop, and did not get reimbursed or the MSC didn't approve the report, you should still expense the cost of that messed up shop as a cost of you doing business. For example, if a car manufacturer manufactures a dud that they have to scrap or a server drops a plate of food - those businesses are absolutely still expensing those costs. Your business of conducting mystery shops is no different.
EDIT: to say that this is NOT financial advice.
Edited 1 time(s). Last edit at 10/07/2022 11:57PM by tgooberbutt.
Fees, net of out of pocket, unreimbursed expenses, are taxed.
$8 fee - $8 unreimbursed expenses = 0 profit ====> $0 gets taxed.
OR
$16 that you 'charge the MSC' - $16 in unreimbursed expenses (because you treated the $8 reimbursement as revenue) = 0 profit =====> $0 gets taxed.
If you set up your mystery shopper services as a company, you can also have other operating expenses related to your professional development, training, research, and travel. There's a lot of grey area there. For example, if in your professional opinion, you need to purchase a $20 meal in order not to get called out as a mystery shopper, then that additional ($20 - 8 = $12) arguably can be an operating expense. If you messed up a shop, and did not get reimbursed or the MSC didn't approve the report, you should still expense the cost of that messed up shop as a cost of you doing business. For example, if a car manufacturer manufactures a dud that they have to scrap or a server drops a plate of food - those businesses are absolutely still expensing those costs. Your business of conducting mystery shops is no different.
EDIT: to say that this is NOT financial advice.
@Zek wrote:
Fees = income = taxed
Reimbursements are not income = not taxable
Technically the $8 fee is income and you could write-off only $8 of the $16 required purchase because the MSC is reimbursing 50% of the cost or $8.
Edited 1 time(s). Last edit at 10/07/2022 11:57PM by tgooberbutt.
Also NOT financial advice....
I do this form of "cash accounting" for my MS work across all companies I work for as an independent contractor:
(All cash outlay to perform the shop) - (All cash receivables from MSC - this includes fee + reimbursement) = Net Profit that I pay tax on
This method accounts for making money on some Fee Only shops, and also covers the cost of some dining shops that do not fully reimburse. In the end, the profit is still positive, but it makes calculating everything at the end of the month/quarter/year easier if you don't need to split out the Fee from the Reimbursement. Just look at the totals.
(Though, I do keep two columns with Fee and Reimbursement
)
I do this form of "cash accounting" for my MS work across all companies I work for as an independent contractor:
(All cash outlay to perform the shop) - (All cash receivables from MSC - this includes fee + reimbursement) = Net Profit that I pay tax on
This method accounts for making money on some Fee Only shops, and also covers the cost of some dining shops that do not fully reimburse. In the end, the profit is still positive, but it makes calculating everything at the end of the month/quarter/year easier if you don't need to split out the Fee from the Reimbursement. Just look at the totals.
(Though, I do keep two columns with Fee and Reimbursement
)
I have an extra column on my spreadsheet that covers unreimbursed expenses that I might have had which I can deduct. These are expenses that are absolutely necessary to get the job done. These would be things like parking expenses for the shop. If you live in a large city you are likely to have to pay for parking even though you do not get reimbursed. It also includes the added expense when the very least expensive thing I can buy to fulfill the job requirements is over the reimbursement after tax. Any extra amounts I pay out of pocket that do not meet my deductible definition I only deduct from my fees in my mind. I do not deduct them on my taxes.
@macrophage wrote:
Also NOT financial advice....
I do this form of "cash accounting" for my MS work across all companies I work for as an independent contractor:
(All cash outlay to perform the shop) - (All cash receivables from MSC - this includes fee + reimbursement) = Net Profit that I pay tax on
This method accounts for making money on some Fee Only shops, and also covers the cost of some dining shops that do not fully reimburse. In the end, the profit is still positive, but it makes calculating everything at the end of the month/quarter/year easier if you don't need to split out the Fee from the Reimbursement. Just look at the totals.
(Though, I do keep two columns with Fee and Reimbursement
Bear in mind that if the MSC reports to the IRS (which I think is a $600 threshold), they report the "fee" amount. If you're filing totals that are smaller you might raise some flags. Higher is less likely.
Ignoring the threshold, let's say they report paying you $8.
If you say "My income was $0" that will look suspicious.
If you say "My income was $8 and I have an $8 unreimbursed expense," that lines up nicely.
If you say "My income was $16, of which $16 went to expenses," that doesn't seem like you're hiding anything either.
Ignoring the threshold, let's say they report paying you $8.
If you say "My income was $0" that will look suspicious.
If you say "My income was $8 and I have an $8 unreimbursed expense," that lines up nicely.
If you say "My income was $16, of which $16 went to expenses," that doesn't seem like you're hiding anything either.
I also do not believe you need to purchase the "least expensive item" to fulfill the job requirements. Let's say you are doing a burger shop and the reimbursement is $15. Getting the lettuce wrap will definitely get you below reimbursement with no out of pocket, but depending on how you define your "work" then you can get a burger (because that is what the client prefers) and it is ordinary and necessary to fulfill the job requirements.
You, personally, set the standard for the limits and how much you go over. In totality, it can be deducted from your business expenses (as an independent contractor) as part of operating your "business." If you do things other than MSing such as merchandising or Ride Sharing and report it under the same LLC or SSN, then all of those receivables and expenses roll up under the same bucket. A loss in one offsets the gains in the other bucket.
Diversify what you do to blend overages in expenses with pure profit jobs.
EDIT: Don't forget, for most people, mileage is one of the biggest expenses! So if you're in suburbia, you're already likely half way there in terms of chopping down taxable income.
Edited 1 time(s). Last edit at 10/12/2022 12:31PM by macrophage.
You, personally, set the standard for the limits and how much you go over. In totality, it can be deducted from your business expenses (as an independent contractor) as part of operating your "business." If you do things other than MSing such as merchandising or Ride Sharing and report it under the same LLC or SSN, then all of those receivables and expenses roll up under the same bucket. A loss in one offsets the gains in the other bucket.
Diversify what you do to blend overages in expenses with pure profit jobs.
EDIT: Don't forget, for most people, mileage is one of the biggest expenses! So if you're in suburbia, you're already likely half way there in terms of chopping down taxable income.
Edited 1 time(s). Last edit at 10/12/2022 12:31PM by macrophage.
As long as you can show you are trying to make a profit, losses are fine. Racking up losses on reimbursement shops to offset other income is questionable.
@mystery2me wrote:
As long as you can show you are trying to make a profit, losses are fine. Racking up losses on reimbursement shops to offset other income is questionable.
Indeed. Just imagine an auditor asking "Why did you take this job if it lost you money?" If your answer is "Well I have to eat anyway," their response will be "Yes you do. So it's not a business deduction." There are answers you could use, like "I wanted to get my foot in the door with this company" or "I didn't realize how expensive it was until I got there," but obviously those are limited.
No one wants to get audited and it's unlikely that you will. But approach your taxes like you're following the spirit AND the letter of the law.
@Amarsir wrote:
@mystery2me wrote:
As long as you can show you are trying to make a profit, losses are fine. Racking up losses on reimbursement shops to offset other income is questionable.
Indeed. Just imagine an auditor asking "Why did you take this job if it lost you money?" If your answer is "Well I have to eat anyway," their response will be "Yes you do. So it's not a business deduction." There are answers you could use, like "I wanted to get my foot in the door with this company" or "I didn't realize how expensive it was until I got there," but obviously those are limited.
No one wants to get audited and it's unlikely that you will. But approach your taxes like you're following the spirit AND the letter of the law.
I'm wondering, out of curosity and my own issues... I do a lot of jobs that are either reimbursement only or tiny pay with reimbursement like some grocery jobs or fine dining jobs. Would you not include expenses for these kinds of jobs (mileage, etc.)? I will make a profit this year but it will not be huge. This is my first year doing MS.
Of course you would declare mileage for reimbursement only shops. They are part of an MS business and mileage is a legitimate expense, as would be tolls and/or parking.
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.
Shopping from the Carolinas to New York
Have video cam; will travel
Poor customer service? Don't get mad; get video.
@walesmaven wrote:
Of course you would declare mileage for reimbursement only shops. They are part of an MS business and mileage is a legitimate expense, as would be tolls and/or parking.
I've been planning on it but I'm getting paranoid about how much profit I'm going to be showing. I'm going to do everything as much by the book as I possibly can, save all receipts and then pray for the best with the IRS.
A loss in a start-up year is no big deal. Next year I suggest that you do some bank jobs with nice fees to $50 and up.
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.
Shopping from the Carolinas to New York
Have video cam; will travel
Poor customer service? Don't get mad; get video.
One of the posters here reminded us that we can take off our medical plan expenses as an independent contractor. I have not yet fully explored that thought but did briefly look at the IRS publication and saw that it is mentioned. For those of us who are working for reimbursement mostly this could be another tempting way to have some hidden reimbursement. Being in a higher tax bracket many of the fees are just not worth it for me but I may consider next year starting to do those higher paying fee only jobs rather than just writing off meals and other reimbursements so that I can hopefully offset some of my medical expenses and have a bigger profit to show on my schedule C at the same time. Anyone doing this successfully?
If you do not have medical insurance through a W-2 job, yes, you can write off self-employed medical insurance. Most of us do this.
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.
Shopping from the Carolinas to New York
Have video cam; will travel
Poor customer service? Don't get mad; get video.
@tgooberbutt
Yes, in the OP's scenario, any way you do the accounting/math its $0 profit and $0 taxed.
In your scenario where one has to purchase a $20 meal to not be called out as a mystery shopper, in what operating expense category do you write the additional $ off? I'm thinking not under meals as thought this category only allows 50% of the expense to be written off? I may have that wrong tho.
Edited 1 time(s). Last edit at 10/13/2022 07:33PM by Zek.
Yes, in the OP's scenario, any way you do the accounting/math its $0 profit and $0 taxed.
In your scenario where one has to purchase a $20 meal to not be called out as a mystery shopper, in what operating expense category do you write the additional $ off? I'm thinking not under meals as thought this category only allows 50% of the expense to be written off? I may have that wrong tho.
@tgooberbutt wrote:
I'm not sure what context you're using with "Income," so I will be super-precise.
Fees, net of out of pocket, unreimbursed expenses, are taxed.
$8 fee - $8 unreimbursed expenses = 0 profit ====> $0 gets taxed.
OR
$16 that you 'charge the MSC' - $16 in unreimbursed expenses (because you treated the $8 reimbursement as revenue) = 0 profit =====> $0 gets taxed.
If you set up your mystery shopper services as a company, you can also have other operating expenses related to your professional development, training, research, and travel. There's a lot of grey area there. For example, if in your professional opinion, you need to purchase a $20 meal in order not to get called out as a mystery shopper, then that additional ($20 - 8 = $12) arguably can be an operating expense. If you messed up a shop, and did not get reimbursed or the MSC didn't approve the report, you should still expense the cost of that messed up shop as a cost of you doing business. For example, if a car manufacturer manufactures a dud that they have to scrap or a server drops a plate of food - those businesses are absolutely still expensing those costs. Your business of conducting mystery shops is no different.
EDIT: to say that this is NOT financial advice.
@Zek wrote:
Fees = income = taxed
Reimbursements are not income = not taxable
Technically the $8 fee is income and you could write-off only $8 of the $16 required purchase because the MSC is reimbursing 50% of the cost or $8.
Edited 1 time(s). Last edit at 10/13/2022 07:33PM by Zek.
In this case, I would most likely put it all into cost of goods/services, because (in my professional mystery shopper judgement), I had to spend the full $20 in order to successfully complete the contract with the scheduler/MSC. I would not have to incur that $20 except to successfully fulfill the contract I made with the MSC.
@Zek wrote:
@tgooberbutt
Yes, in the OP's scenario, any way you do the accounting/math its $0 profit and $0 taxed.
In your scenario where one has to purchase a $20 meal to not be called out as a mystery shopper, in what operating expense category do you write the additional $ off? I'm thinking not under meals as thought this category only allows 50% of the expense to be written off? I may have that wrong tho.
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