Hello-I am a secret shopper in Illinois. I will be making enough to receive a 1099 and pay taxes in Illinois. Is it a bad idea to secret shop while on vacation in another state? Would I have to file taxes in that other state then, which would obviously be a total headache?

First of all, you need to report ALL MS fees received on IRS Schedule C and your state tax forms regardless of whether or not you are sent a 1099. Secondly, MS fees earned in other states than your home state get reported and taxes on them paid, in your home state unless there are highly exceptional tax laws where you live.

You are now running a business and as such, it is your responsibility to maintain complete records of fees, separated from reimbursements, and also of business expenses that you are allowed to claim to reduce your tax burden. Do not assume that the MSC's records are a substitute for your records. If/when a 1099 is incorrect, it is YOUR records that will demonstrate that. Several MSCs include reimbursements on the 1099s that go to the IRS so be sure that your records can save you from being taxed on reimbursements!

Thank you so much! This is very helpful info.

In fact, it can be a good idea to do some MS'ing while you're on vacation. You can deduct some expenses that you ordinarily wouldn't be able to when they're incurred in the course of doing business. For example, you spend several hours doing touristy things, but when you're done, you've picked up a mystery shop that's, say, at the furthest point from your hotel. You can claim the miles from the shop back to your home base. If you were to set out one day of your vacation (not that most people would want to work a full day while on vacation, but if you expected to have that much down time....) exclusively for shopping, you can deduct the day's mileage and probably meal expenses. A tax attorney who gave a seminar on taxes for the self-employed said that expenses incurred while on vacation that are relatable to your business are generally deductible.

I used to be a Realtor, and we were considering buying a rental property in the area where we often vacationed. I spent almost all day looking at properties, starting from the time I left the motel, and was able to legally write off a boatload of expenses.

ETA: "Home base" being your hotel.



Edited 2 time(s). Last edit at 05/14/2023 11:32PM by BirdyC.

Yes but I do want to caution that your home base when on vacation in the case of Birdy's example is the hotel or family you are staying at and not your home 300 miles away. Some of these are very grey areas. I used to base vacation trips around a series of hotel shops I liked to do. The hotel shop was a base of the vacation. So I would do two or three hotel nights relatively near to each other but 125-300 miles from my home. Was I allowed to write off the 125 mile distance to the first hotel, the distances between and then back home? That I feel is a grey area. And maybe these three hotels were not my only nights of my vacation? What can be written off then mileage wise? Grey areas for us non professional tax people to be explored before deciding what to report on your taxes.

@sandyf wrote:

Yes but I do want to caution that your home base when on vacation in the case of Birdy's example is the hotel or family you are staying at and not your home 300 miles away.

Yes; that's what I meant and had hoped it was clear....

@sandyf wrote:

What can be written off then mileage wise? Grey areas for us non professional tax people to be explored before deciding what to report on your taxes.

This is true. This is also why I always recommend people use a tax professional in doing their taxes, so that these questions can be answered by the pro instead of us self-employed folks having to guess.

Many times it's very clear what can be written off in this situation; other times, it's not. E.g., a night's hotel cost might be written off--depending on your activities surrounding that night, how much of the time was spent on business vs. pleasure, etc. In those cases, I don't assume or guess--I ask!

Hello-thanks for all your good tips and guidance. When keeping track of mileage for shops (just like from my home to a restaurant shop), how do price the cost of gas? Do you get and save your gas receipts and then figure out what the breakdown is based on what you paid at the pump previously?

Most people just track mileage and then use the standard IRS mileage rate which is currently 65.5 cents/mile

Edited 1 time(s). Last edit at 05/16/2023 01:47AM by jazzzyjd.

You have two choices when you report mileage on Schedule C at the end of the year. You can either use the IRS standard mileage rate ($0.655 per mile so far in 2023) or you can keep track of all allowable costs such as gas, oil, tune-ups, repairs, new tires, depreciation, etc. Regardless of which method you choose to use, you have to track total mileage for the year and the miles driven for mystery shopping. If you choose method 2 and 10% of the miles you drive are for mystery shopping, then the total of all expenses will end up being multiplied by 0.10. In addition to the mileage rate or actual expenses, you can, in addition, claim as business expenses highway tolls, bridge tolls, and parking expenses incurred while doing mystery shopping.

My belief is that most people use the standard mileage rate. You will find some people who say that they ask for money to cover gas. If they actually do that, then they are really short-changing themselves. Consider that if gas costs $5 per gallon, and you get 20 miles per gallon, the cost of gasoline alone would be $0.25 per mile, whereas the standard mileage rate is $0.655 per mile. You might think that $0.655 per mile is too low. The way to find out is to track all costs including depreciation and see which benefits you the most. Remember, that if you buy a new car and it depreciates $5000 in the first year and you use the car 10% of the time for mystery shopping, then the pro-rata depreciation is only $500. If you drive 2000 miles (out of 20,000 total miles = 10%), then that works out to $0.25 per mile ($500 / 2000 miles). In this pretend example, you are now up to $0.50 per mile. You need to find another $0.655 per mile to just break even against the IRS mileage rate. 2000 miles are $0.155 per mile = $310, but that is only 10%, so you would have had to have had $3100 in repairs, maintenance, sites, windshield wiper blades, etc. for the entire year.

@mcarlsonlane wrote:

Hello-thanks for all your good tips and guidance. When keeping track of mileage for shops (just like from my home to a restaurant shop), how do price the cost of gas? Do you get and save your gas receipts and then figure out what the breakdown is based on what you paid at the pump previously?

This is so helpful! Thank you so much!

Depending on what states you shop in, you may have to file what is known as a Non-resident 1040, and they are not always very complicated. If you have opportunities to make money in other states, I wouldn't let the tax forms deter you. Perhaps you can go to that states' department of revenue website to pull up the form and review it.