I am going to preface this question with the fact that I know anything anyone says is not official nor is it official tax advice.

I have a couple of questions as I close out the last year of mystery shopping and prepare to file taxes. I would appreciate those that have done this for a while that actually know the answers to chime in. I really appreciate any info you can give.

1. When I fill out the tax forms, will I need to enter each MSC separately, or can I lump everything together?

2. For a shop with reimbursement, if I spend more than the reimbursement amount, is the amount above the reimbursement considered an expense? For example, if the reimbursement for a job is a max of $32 and I spend $35 or even $50, is that amount above the $32 an expense?

3. If I do a shop in Dec that doesn't pay until Jan, does the milage expense count in Dec or is it an expense against the shop and count for business and tax reasons once the shop pays?

1. Your Schedule C will be the sum of all your work together. Total revenue. Total mileage. Total expenses, etc.

2. Try to not overcomplicate the reimbursement aspect. As long as any amount over the reimbursement limit is reasonable to the shop guidelines you agreed to follow with the MSC, think of it this way:

What is the total amount the MSC will pay you at the end of the day (fee + reimbursement amount the MSC will pay you), which will be your REVENUE.

What are your total expenses? Could be dollar amount that you needed to front for the shop. It could also be parking and toll expenses that you fork up as out of pocket expenses. Same with reasonable tip. This will be your EXPENSES.

Thus, REVENUE minus EXPENSES (including mileage) = NET INCOME.

3. Preference on my end since I give time for the MSC’s to pay before I submit my taxes. So if the shop is performed between 01/01-12/31 of that calendar year, it’ll be part of that year’s taxes.

There are special cases where a project will happened at the end of the December, but not complete until some time in January, I just make clear splits accordingly and not double dip (or not forget to account for it one way or another).

Again, my response isn’t tax advice, but rather it’s what I’ve been doing and what my tax preparer is fully aware of too. Never had any issues from my tax preparer at the end of the day.



Edited 1 time(s). Last edit at 01/14/2023 09:18PM by Tarantado.

Google:

Where in The U.S. Are You Most Likely to Be Audited by the IRS?

Propublica

Some states don’t get it

I'm also new to this so I don't have that much to add. I also have some similar questions.

Concerning 2. I had read someone on here comment that it depends on if the reimbursement COULD have covered the expense. I'll give a generic example. Let's say you're doing a fast food burger joint and the reimbursement is $10 and you could have ordered something that met the requirents for $10 but instead ordered something that was $15 you would not deduct the difference ($5). However, if you are reimbursed for $10 but you had to spend $15 to meet the requirments you would write off the difference ($5). I have no idea if this is correct and I would love if someone else would chime in.

I'm in exactly that boat where I have opted for more expensive options with some shops but for others, I could not have met the requirments and spent any less.

Hopefully someone with actual experience can chime in and help out.

@olympia tennenbaum wrote:

I'm also new to this so I don't have that much to add. I also have some similar questions.

Concerning 2. I had read someone on here comment that it depends on if the reimbursement COULD have covered the expense. I'll give a generic example. Let's say you're doing a fast food burger joint and the reimbursement is $10 and you could have ordered something that met the requirents for $10 but instead ordered something that was $15 you would not deduct the difference ($5). However, if you are reimbursed for $10 but you had to spend $15 to meet the requirments you would write off the difference ($5). I have no idea if this is correct and I would love if someone else would chime in.

I'm in exactly that boat where I have opted for more expensive options with some shops but for others, I could not have met the requirments and spent any less.

Hopefully someone with actual experience can chime in and help out.

Will definitely have different responses on this one.

The simple example I can think of is Five Guys.

The MSC has stated in my past to “vary our orders” to stay discrete. The guidelines also ANY entree to be ordered.

In my area, ordering anything that isn’t a veggie bowl or sandwich, little fries and a drink will immediately put you over reimbursement. To say the $1-3 out of pocket is something you have to eat because I ordered a hot dog or a burger is something I disagree with and my tax preparer would allow to account, as at the end of the day, it’s within guidelines on the scope of the shop and a net profit when account total what the MSC will pay with reimbursement minus my expenses.



Edited 1 time(s). Last edit at 01/14/2023 10:14PM by Tarantado.

1. Lump everything together. Many tax programs ask you to input each 1099 separately. If you have a lot of 1099s, this is just an unnecessary hassle as the software does not actually transmit any of the 1099s you entered to the IRS. (Unlike with W-2s, which the software does transmit.) It simply lumps them all together and transmits the total. You can skip the extra work and enter the total yourself under "other business income" or whatever, depending on the software.

2. Deduct what is ordinary and necessary in the pursuit of achieving profit. You will get a dozen different answers on what this means. Just do what you would feel comfortable justifying face-to-face with an auditor. Got a burger instead of a dog because you are tired of hot dogs? Sounds reasonable. Got an energy drink instead of a piece of gum because the gum gives you away as a shopper? Sounds reasonable. Got a prime-cut-steak instead of chicken because you're a steak lover, less reasonable.

3. Expenses are deductible in the year they are paid, or in the case of mileage, the year you drove the miles.

There are two fundamental choices when reporting business expenses and revenue. 1) Accrual - you recognize expenses such as mileage, purchases, and mileage when the shop occurs. If you adopt the accrual method, you also have to count as revenue the amount you will be reimbursed or paid as if that occurred on the same day as the shop, even though you will not be paid for a month or longer or maybe never. 2) Cash - you account for expenses on the day they occur. You account for revenue (reimbursement, fees, etc.) on the day you have constructive use of the money (= most likely the day it appears as a check in your mailbox, in PayPal, or in your bank account). Over a long period of time, it all evens out, but I, and I think most shoppers, use the Cash method. The cash method is much easier IMHO when it comes to fees that you end up never receiving.

I keep track of the amount of unreimbursed expenses, which includes overages such as $0.45 at Wawa or $1.78 at FG. It all adds up. Using the cash method, all expenses get lumped together, and all revenue gets lumped together. I only keep track of the overages so that I can reconcile the payments that I get from companies, and there is actually a place to separately record non-reimbursed business expenses on Schedule C which you might choose to use.

There are some on this Forum who have argued that if you go to TRH and get reimbursed for $50 of food, but you actually spend $99, you can deduct the extra $49. I personally would not do that, but if ordering a reasonable amount of food amounted to a total of $59, I would deduct the extra $9. It comes down to how much you think you could justify to an IRS agent in the (rare) event that you are audited.

Edited to add:
Don't forget other business expenses such as paper, pens, copies, parking meters, etc. Larger items such as computers might be eligible to be expenses. You may be able to deduct costs for using the internet at home, cell phone fees, home office expenses, etc. There are going to be a lot of opinions expressed about what you can and can't expense and/or deduct among the items I mentioned in this paragraph.



Edited 1 time(s). Last edit at 01/15/2023 02:59AM by myst4au.

@Tarantado wrote:

@olympia tennenbaum wrote:

I'm also new to this so I don't have that much to add. I also have some similar questions.

Concerning 2. I had read someone on here comment that it depends on if the reimbursement COULD have covered the expense. I'll give a generic example. Let's say you're doing a fast food burger joint and the reimbursement is $10 and you could have ordered something that met the requirents for $10 but instead ordered something that was $15 you would not deduct the difference ($5). However, if you are reimbursed for $10 but you had to spend $15 to meet the requirments you would write off the difference ($5). I have no idea if this is correct and I would love if someone else would chime in.

I'm in exactly that boat where I have opted for more expensive options with some shops but for others, I could not have met the requirments and spent any less.

Hopefully someone with actual experience can chime in and help out.

Will definitely have different responses on this one.

The simple example I can think of is Five Guys.

The MSC has stated in my past to “vary our orders” to stay discrete. The guidelines also ANY entree to be ordered.

In my area, ordering anything that isn’t a veggie bowl or sandwich, little fries and a drink will immediately put you over reimbursement. To say the $1-3 out of pocket is something you have to eat because I ordered a hot dog or a burger is something I disagree with and my tax preparer would allow to account, as at the end of the day, it’s within guidelines on the scope of the shop and a net profit when account total what the MSC will pay with reimbursement minus my expenses.

That makes sense. Does it get more gray when you think of Panda and have the choice between a bowl and a plate?

The IRS sets a rule of 50% for non-reimbursed, non-entertainment meals. Including the un-reimbursed portion if you spend more. However, for tax years 2021 and 2022 that was raised to 100% if spent at a restaurant. So yes, you can deduct the full amount of your meal.

In order to be a business expense it only has to be something you spend for the purpose of running your business as a shopper. You don't have too spend the very minimum. But you can't order 6 more meals to go, either.

Consider how the expense is typically used. E.g. An office orders in dinner to feed employees working late. is the business required to order only the cheapest food they can find? Of course not. As long as it's not "lavish or extravagant", it's a business expense. The same holds for you.

@Amarsir wrote:

The IRS sets a rule of 50% for non-reimbursed, non-entertainment meals. Including the un-reimbursed portion if you spend more. However, for tax years 2021 and 2022 that was raised to 100% if spent at a restaurant. So yes, you can deduct the full amount of your meal.

In order to be a business expense it only has to be something you spend for the purpose of running your business as a shopper. You don't have too spend the very minimum. But you can't order 6 more meals to go, either.

Consider how the expense is typically used. E.g. An office orders in dinner to feed employees working late. is the business required to order only the cheapest food they can find? Of course not. As long as it's not "lavish or extravagant", it's a business expense. The same holds for you.

This was taken too literal.

It’s suggesting that shops that paid lump sum amounts like 360 Relay. For example, a $130 fee total pay shop (no reimbursement) but meeting the shop requirements for a restaurant is $70 expenses for an entree, app and drink, to say this would be only 50% tax deductible is ridiculous and not to the spirit of what that part of the tax law meant.

In other words, it’s suggesting the two pay structures for the exact same shop would have different tax implications….
1. $130 flat fee (that has a $70 expense)
2. $60 fee with $70 reimbursement where $70 expenses are expected for the shop.

They don’t.

@Amarsir wrote:

The IRS sets a rule of 50% for non-reimbursed, non-entertainment meals. Including the un-reimbursed portion if you spend more. However, for tax years 2021 and 2022 that was raised to 100% if spent at a restaurant. So yes, you can deduct the full amount of your meal.

In order to be a business expense it only has to be something you spend for the purpose of running your business as a shopper. You don't have too spend the very minimum. But you can't order 6 more meals to go, either.

Consider how the expense is typically used. E.g. An office orders in dinner to feed employees working late. is the business required to order only the cheapest food they can find? Of course not. As long as it's not "lavish or extravagant", it's a business expense. The same holds for you.

I agree with the sentiment that going a little over and deducting the extra from your profit is not a big deal. But the 50% rule you are talking about does not apply to shops. It only applies to meals purchased for employees, clients, or while traveling away from home. Not that it matters. We can always deduct 100% as a necessary expense of doing the shop, as long as we don't abuse it to shelter other income.

@Tarantado wrote:

In other words, it’s suggesting the two pay structures for the exact same shop would have different tax implications….
1. $130 flat fee (that has a $70 expense)
2. $60 fee with $70 reimbursement where $70 expenses are expected for the shop.

I mean yeah, that's tax law. It's nothing but different rules for categorizations.

I agree that the intent of the 50% rule is to apply to "meal during the job" and not "meal *is* the job." Most of its discussion is in regards to travel expenses, which is not what we're talking about here. However, I could not find an IRS publication that maks the distinction. Perhaps I'll have another look.

Ok, from Publication 535:
[www.irs.gov]

@ wrote:

What Can I Deduct?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

So the criteria are common, accepted, helpful, and appropriate. I think all of those apply to a meal that happens to exceed the minimum reimbursement. Nevertheless, when classifying your business I'd want to be clear that it's Mystery Shopping so that the standard is established.

My question would be this--for those more experienced with this topic--if you go to H&R Block and get the first guy/gal available, are they going to know how to properly enter these items into the appropriate forms or do you need someone more experienced?

@condorchristi wrote:

My question would be this--for those more experienced with this topic--if you go to H&R Block and get the first guy/gal available, are they going to know how to properly enter these items into the appropriate forms or do you need someone more experienced?

I worked at Block for many years as a tax preparer. They have a list of questions when you make an appointment to ensure you are matched with a tax preparer qualified to complete your return.

A schedule C which is what most of us will have, is going to be fairly simple and straight forward and I dare say that the employee SHOULD know what to do. If you have other complexities for your taxes (ex: we sold a house and another property earlier in 2022) then it might be better to find a CPA that comes recommended in your area.

@condorchristi wrote:

My question would be this--for those more experienced with this topic--if you go to H&R Block and get the first guy/gal available, are they going to know how to properly enter these items into the appropriate forms or do you need someone more experienced?

yes and they have no idea about anything other than normal.