(Another) tax related question - reimbursement heavy shops

Having read through the meal writeoff thread I started coming up with a few questions of my own.

I'm new to shopping but have been doing more and more in the past few months. I've been trying to keep good records and receipts, etc. I definitely need to step up my mileage records though!

My concern - many of my shops are reimbursement heavy: grocery shops, fast food shops, high end restaurant shops, etc. My reimbursements to fees are about 2:1 right now. I'm concerned that after I account for mileage, health insurance, and other expenses (part of my internet and wireless) that I'll probably barely be breaking even. Of course, if you counted the goods/reimbursements, I would in the black. Do I need to be concerned about this? Will the IRS be coming for an audit? Any advice would be greatly appreciated.

Just a note that I do not have W2 employment and basically have a collection of side hustles rather than one main hustle.

Edited 1 time(s). Last edit at 10/08/2022 01:33PM by olympia tennenbaum.

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More About Reimbursements

Just my experience, so take it with a grain of salt as I do have a regular W2, and the mystery shopping stuff is just a side hobby. I only have two tips:

1 - keep good records. You won't get in trouble if you are legit losing money or breaking even with your business. If you do get audited, you just have to have clean records of the expenses that you're taking. I am unaware of a law that requires businesses to be profitable.
2 - If your P&L looks reasonable (eg, you're expenses are not way out of whack on a % basis compared to your revenue, and are not wildly different year to year), you are unlikely to be on anyone's radar.

Somewhere I recall seeing something about the IRS getting concerned if your business ran a loss three years in a row. Since you are new to MS, you have a good chance to make a few changes so that you have profits from MS relatively soon, like 2nd or 3rd tax season for the MS stuff.

HOWEVER, since you have several gig-type sources of income, they may look at the overall total to see if you are profit oriented overall. The gig economy is not the focus of much IRS doctrine, as far as I can tell.

Based in MD, near DC
Shopping from the Carolinas to New York
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@tgooberbutt wrote:

Just my experience, so take it with a grain of salt as I do have a regular W2, and the mystery shopping stuff is just a side hobby. I only have two tips:

1 - keep good records. You won't get in trouble if you are legit losing money or breaking even with your business. If you do get audited, you just have to have clean records of the expenses that you're taking. I am unaware of a law that requires businesses to be profitable.
2 - If your P&L looks reasonable (eg, you're expenses are not way out of whack on a % basis compared to your revenue, and are not wildly different year to year), you are unlikely to be on anyone's radar.

Thanks for that advice. I am working on good records. I have all my receipts and keep a spreadsheet of all the details. I'm sure I'll be getting 1099s from almost everyone I've done work for. I have just been doing a pretty high percentage of reimpursement heavy shops. I did a little research this morning and it seems like I should be okay. It seems newer businesses are basically given 3-5 years to become profitable before anyone will start poking around. I'm sure there are always outliers too. The tax man will get his share from other income sources but this one is just getting off the ground a bit. I might have to be more mindfull about how many reimbursement jobs I take.

Thanks again.

I have also read in several long ago threads that they expect profitability 3 out of 5 years at least. Do not expect a 1099 from any company where you did not earn (in fees) at least $600 as they are not required to send one to you below that amount. If you do many reimbursement jobs for several different companies you may not get a 1099 at all. This does not mean you do not have to report the income. I have heard they may consider your business a hobby if you do not produce income year after most years.

The safe harbor rule is if you have turned a profit in at least 3 of 5 consecutive years, the IRS will presume that you are engaged
in it for profit.

Also, when starting a new business the IRS recognizes there will be start-up costs, particularly in the 1st year, but a few specific expenses can extend beyond the 1st 12-months.

With multiple gigs, tax filing can get a bit more complicated. It is important is keep separate records of income, expenses, losses, etc.

I agree with both SandyF and Zek. The general rule is that you have to show an "intent to make a profit". Making a profit in 3 out of 5 years is another generally held belief that you will be alright.

The "intent to make a profit" aspect has saved many an owner of a restaurant. Most restaurants actually fail (go out of business and go bankrupt) in much less than 5 years, but IMHO, building, equipping, and running a restaurant (employees, equipment, food purchases) certainly shows an "intent to make a profit" unless it is losing so much money that it looks like money laundering.

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

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(Another) tax related question - reimbursement heavy shops

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