Good morning everyone.

I prepare tax returns during tax season, and as the tax season is approaching, I would like to provide some tips for accurately preparing your tax return. I have seen some posts on here where individuals are giving confusing and/or completely inaccurate advice or insight into the process.

1. Mystery Shopping income is reported on a Schedule C. You will report your gross income and subtract out your expenses. Your expenses will most likely be mileage and reimbursements if not netted out in your 1099. If you make a profit you will have to pay some self-employment tax (mostly for social security). Schedule A, Itemized deductions, are NOT applicable to mystery shopping income or expenses in any way.

Here is a link to the 2022 Schedule C for reference:

[www.irs.gov]

2. All income is reportable even if you don't receive a 1099. You don't NEED a 1099 to prepare your return and the MSC will only issue one if you made over $600. However, it is good to have one so you can match your 1099 with what you report.

3. Keep some kind of log or spreadsheet of your expenses. In the highly, highly unlikely event you are audited the IRS could ask for it.

4. Really, this is it. If any of this is confusing to you, hire a tax preparer. If you can't afford a tax preparer, the IRS has Volunteer Income Tax Assistance Programs all over the country and they will help you. They post information on these in February. Here is another link:

[www.irs.gov]

5. The new (but delayed) 1099 reporting requirement for pay apps changes nothing for mystery shoppers. MSCs already issue 1099s if you make more than $600. They aren't going to count your income twice as these are two different types of 1099s.

Finally, as I stated, it is not really that difficult and don't believe some of the scare tactics you have read on this board. Keep a spreadsheet of income and expenses and you have zero to be concerned about.

I don't pretend to know everything. If anyone else has any advice or helpful hints for tax time, please share it. However, please keep this to helpful advice and not anti-IRS, government rants and please ignore any trolls who might try and infect this thread.

Thanks and good luck to everyone.

Edited 1 time(s). Last edit at 11/29/2023 05:33PM by HowardJuice23.

@ServiceAward wrote:

@HowardJuice23 wrote:

I don't pretend to know everything. If anyone else has any advice or helpful hints for tax time, please share it. However, please keep this to helpful advice and not anti-IRS, government rants and please ignore any trolls who might try and infect this thread.

I appreciate your insights. Maybe you do prepare taxes for others during tax season. Maybe you don't. Until you post your PTIN, you are just another voice behind a computer screen. I would suggest anyone with any concerns talk to a tax professional THEY know and trust. It's the same advice I would tell someone who had medical issues. That's not to put down anything you stated.

Additionally, simply because people may discuss or say things that you disagree with or do not like, does not make them a troll. Last I checked, people have a right to criticize the IRS, the government, etc. Doing that does not make them a troll. It actually makes them quite American. The topic being discussed in the other thread did snowball into other topics about taxes that had nothing to do with mystery shopping. There was a group of people having that conversation. Maybe the moderators should have moved the topic, but that was their call.

I’m not sure what your point is. If you read my thread I said if you need help to go to a return preparer or an IRS return prep site. Believe me or don’t believe me, I don’t care. Then I welcomed any comments from anyone who had any other advice or insights in regards to doing taxes. I never said people couldn’t discuss things. I asked if we could keep this thread to helpful tax preparation. That’s why I got out of the other thread because of the confusing and false remarks. Last I checked, this is a mystery shopping forum and not Twitter. I don’t think it’s unreasonable that the posts should pertain to, you know, mystery shopping. You have invented drama and made something out of my post that it’s not.

Edited 1 time(s). Last edit at 11/30/2023 05:56AM by HowardJuice23.

I, for one, agree with what HowardJuice has laid out above. Of course some have a different and unique situation and what he has said is the basics. So someone may have a situation that is complicated by other tax events in their lives.
I would also add that I am not a tax expert but I have read the IRS rules, at least the ones that pertain to my tax situation. And I have also commented on the "other" thread. In my case just because I felt the original premise of the thread was questionable.
I do not agree that everyone should consult a tax preparer. This I read over and over here and elsewhere whenever taxes are mentioned. If your situation is fairly straight forward and you have the type of mind that is good with understanding written instructions and numbers and concepts you may be able to be your own tax consultant. If you choose to be your own tax consultant you should use online advice as a jumping off point to do your own research using the government guidelines. It is a good idea to double and triple check any advice you read online. I find it much easier to read and understand government speak if I already have an idea of what they are saying from reading an almost trusted site. Reading the government sites when you have some understanding already also allows you to find and correct wrong information that you may believe from reading it elsewhere.

Looking for some different opinions as I consider my own situation (with consultation with my own accountant).

How are you deducting any meals ordered as part of a shop on your Schedule C? Are they meals (only 50% deductible)? or are they considered a required supply to complete the shop?

I consider mystery shop meals as 100% deductions since they are necessary to complete the shop (vs. business meals with clients).

@brabino wrote:

Looking for some different opinions as I consider my own situation (with consultation with my own accountant).

How are you deducting any meals ordered as part of a shop on your Schedule C? Are they meals (only 50% deductible)? or are they considered a required supply to complete the shop?

They are considered required to complete the shop. You either deduct them from your total payment on the schedule C or you don’t include them at all and only include the fees you are paid.

Question: If we had expenses in 2023 that haven't been reimbursed yet (say, for a December shop), do we report that as an expense this year, but then not deduct that reimbursement in 2024 when we get paid?

@mysterioso412 wrote:

Question: If we had expenses in 2023 that haven't been reimbursed yet (say, for a December shop), do we report that as an expense this year, but then not deduct that reimbursement in 2024 when we get paid?

I think the technical answer is when the expense was paid but I think if you wait until 2024 it won’t be a big deal. But you can’t claim it twice

The meals are confusing. I spoke to a tax preparer but she told me she would consider the meal shops a "hobby" because I was taking a family member or a friend. But that is a requirement of the shop . She did not know much about mystery shopping.

My thought was if I have a TRH shop, no fee, reimbursement is $50 but I spend 75. Then that 25 is an expense that I can deduct. She says no. This will be my first time doing taxes with a schedule C so I am going to give it a try myself. I might look for a tax consultant to review. All depends on how I feel about it once done.

@mysterioso412 wrote:

Question: If we had expenses in 2023 that haven't been reimbursed yet (say, for a December shop), do we report that as an expense this year, but then not deduct that reimbursement in 2024 when we get paid?

It probably depends on if you're doing cash or accrual accounting. Hopefully someone can chime in about this.

@Datagirl wrote:

The meals are confusing. I spoke to a tax preparer but she told me she would consider the meal shops a "hobby" because I was taking a family member or a friend. But that is a requirement of the shop . She did not know much about mystery shopping.

My thought was if I have a TRH shop, no fee, reimbursement is $50 but I spend 75. Then that 25 is an expense that I can deduct. She says no. This will be my first time doing taxes with a schedule C so I am going to give it a try myself. I might look for a tax consultant to review. All depends on how I feel about it once done.

It is really not that confusing. Of course you can deduct the meal reimbursed payment REQUIRED to perform the shop. Most MSCs break it down on the 1099 and don't even include reimbursement portion as a reportable amount. But you cannot deduct what you spent over the amount of the required/reimbursement part as an additional expense.

So for example - let's say you went to a restaurant, where you got $20 for remibursement and a $10 shopping fee and you spent $22 on the food. Your only taxable amount is $10. Period. You cannot deduct the $2 extra dollars, but you can deduct other expenses such as mileage, parking or other transportation. You could argue to the IRS the $2 extra dollars is a necessary expense, I guess, but likely they won't allow it because there are very specific rules for meals/entertainment expenses.

As to when is an expense is deductible, yes, it would technically depend on if you use cash or accrual accounting. Most people use cash accounting for small businesses so technically the expense would be deductible the year you paid it, even if you don't receive your payment for the shop until the following year. However, my guess is this would likely be such a small and insignificant amount the IRS is not going to care one way or the other.

Finally, I find it weird and kind of sad that someone would want to interject politics into this subject. But I guess that is the world we live in.

Edited 3 time(s). Last edit at 01/01/2024 06:03PM by HowardJuice23.

Tip: Take a photo of your odometer today before you get going so you have your starting mileage/ending mileage for last year.

It sounded to me like Howard was just being helpful by objectively giving us some basic pointers. Many of us know these things but there are many, many people who are new to the IC world and his tips could be beneficial to them.

A few notes from my understanding and I am NOT a tax preparer. I prefer to use the cash method, reporting all the jobs I did during the year based on when I performed them. For me it is cleaner to have an annual report rather than have a few strays to keep track of for the next years reporting. My understanding of taxes though is that you are supposed to be consistent in your reporting methods. So if you use the cash method this year you should continue to use it going forward. There is probably a method to change this choice from cash to accrual method but if you keep flip flopping back and forth, one year cash, the next accrual and so on that is not how it works.
As for the reimbursements, I believe if you cannot perform the shop and stay under the reimbursement due to menu prices you can deduct the difference. It will probably be slight but if for some reason it is a large $$ difference you should be ready for a challenge, perhaps taking a snapshot of the menu the day you did the shop. So as an example, I recently did a Panda Express shop. I purchased the larger plate even tho it went over the reimbursement amt. Since I could have purchased a less expensive entree under the guidelines for this shop I would not deduct the difference between what I was reimbursed and what I paid.
We all rationalize our choices at some point in life and sometimes take a chance and do something for our own benefit that deep down we know is not the intended rule. Often times the chance of getting caught is very slight but that chance is there and in each instance it is up to you to decide if you want to chance the consequences if you do get caught out.
I may have interpreted the IRS rules incorrectly but just throwing out my interpretation.

Cash means you report expenses paid and income actually received in your hand (or account or whatever) during a year. Accrual means you report expenses paid and income earned during a year, even if you don't actually get the money until the next year. You choose one the first year and stick with it, usually.

If you use the accrual method, none of this is an issue. Both things reported the same year. But if you use the cash method, you deduct the expense the year you paid for the meal, and you count the income (reimbursement) the year you get the money.

@mystery2me wrote:

Cash means you report expenses paid and income actually received in your hand (or account or whatever) during a year. Accrual means you report expenses paid and income earned during a year, even if you don't actually get the money until the next year. You choose one the first year and stick with it, usually.

If you use the accrual method, none of this is an issue. Both things reported the same year. But if you use the cash method, you deduct the expense the year you paid for the meal, and you count the income (reimbursement) the year you get the money.

Thanks for correcting me. So I use the accrual method. I had checked someones definition in a prior post and went with that. I can never remember the names of these choices just how I actually do it.

There are two reasons why I advise against the accrual method:
1) You accrue the income when you complete the shop. If you do the shop in December but are not paid until January, the payment is still accrued in December and you owe taxes on that money when you file in April. That is bad.
2) Worse is if you accrue the income in December and expect payment in January. You are not paid at all but don't find out until January or even later. Legally, you still have to accrue the income in the December year and pay taxes on it in April. If you actually find out in January, you could of course just change your books (luckily no one is collecting or auditing monthly accounting records for any of us, I think). Or maybe you can deduct a bad business expense for the following tax year. Either way, complicated.
I selected the Cash method the first year and I am convinced that it was the right choice for me.

@mystery2me wrote:

If you use the accrual method, none of this is an issue. Both things reported the same year. But if you use the cash method, you deduct the expense the year you paid for the meal, and you count the income (reimbursement) the year you get the money.

Each can choose the best way for themselves. Since the rare bonuses are about $2 where i live if I do not get paid for one shop for some strange reason the fee I missed is probably only $10. Tax on that after deducting mileage is very little so it does not worry me. I never file taxes until April so I have time to back it out.

Please be mindful of PayPal. They are reporting directly to the IRS. It includes all your payments, including reimbursements. For 21-22, I had everything double-reported as I still got 1099s from the companies. My accountant has spent the last six months straighting this out. Read about the new laws on third-party reporting and be aware. It should not be happening, but it is. As always, check with a professional.

It really dpends on the individual taxpaeyer and their situation. For me, it was advantageous to have more income the first year. Plus it saves me the work of tracking exactly which shops from December or November were paid the folowing year. If I don't get paid for a shop for some reason, I simply create a listing on Schedule C next year for bad debts. Easier than tracking pay dates, at least for me, because I do a ton of shops at the end of the year..

And back to the original question regarding reimbursements. as someone said, if it is a small amount I wouldn't worry about it too much either way. Just do what is easiest.

@Rubi wrote:

Please be mindful of PayPal. They are reporting directly to the IRS. It includes all your payments, including reimbursements. For 21-22, I had everything double-reported as I still got 1099s from the companies. My accountant has spent the last six months straighting this out. Read about the new laws on third-party reporting and be aware. It should not be happening, but it is. As always, check with a professional.

Ugh. Here we go with this again. What did your accountant have to spend six months figuring out? You only have to report this income you earned once. Period. There are multiple types of 1099s and you only have to report the income earned through mystery shopping 1099s (and other income received from MSCs if they didn't issue a 1099). There is nothing to straighten out. Plus, until 2024 PayPal was only required to report income received over $20,000. This year it has been raised to $5,000. But still, it is only money paid to you through PayPal (not all MSCs do this). There was another thread where this topic was discussed all too deeply, which is why I started this thread to stop with all the confusion regarding this.

Again, nothing to be "mindful" of and nothing to worry about. You are only required to report the income you received and only report it once. The IRS knows the difference between a PayPal 1099 and a MSC 1099. Please give this topic a rest.

@Rubi wrote:

Please be mindful of PayPal. They are reporting directly to the IRS. It includes all your payments, including reimbursements. For 21-22, I had everything double-reported as I still got 1099s from the companies. My accountant has spent the last six months straighting this out. Read about the new laws on third-party reporting and be aware. It should not be happening, but it is. As always, check with a professional.

If you are keeping your own records, which if you are not you should start to do right now for 2024, the 1099's you get, double or otherwise, should not come into play at all. All of us who are mystery shoppers should be treating this as a business which means keeping track of all expenses and income with detail. You will need this accounting if you ever get audited. So if you are just handing your tax accountant a shoebox full of 1099s and random receipts early Jan is a good time to clean up your act.
Many of us use spreadsheets and there are examples of these on I believe the New Mystery shopper tabs. I have an excel spreadsheet where I jot down each expense (including miles) for each job I do with dates. You can sort it by MSC. Then it is easy to just sort at the end of the year and see how much you actually earned and spent for each MSC you work for. If you are getting a 1099 you can compare your total with the one on the 1099 and can easily see if they have included reimbursements ( the total will equal your total for both fees and reimbursements or near to it) . You can ignore the one from paypal if it is different or combines many different msc in one. Just use your own figures if you have accurately recorded them. If there are big differences between your figures and the 1099 you received go the the msc website where they usually will have a listing of each job you did and what you got paid. Maybe you missed inputting one and you will discover it that way.
Also be aware that you will not receive a 1099 if you earned under $600 from any one msc. But you did earn that money and you DO need to report that as income on your IRS forms. Income is income whether or not they send a 1099 to the government.
You are entitled to deduct expenses for your business. The 1099 sent to you will not have any of that listed. They do not know how far you had to drive to do the job etc. So it is on you to keep track of that so you can deduct any legal expenses you had. While you are keeping track of that for each job anyway it is easy to add columns for fees and bonuses and reimbursements.

@sandyf wrote:

@Rubi wrote:

Please be mindful of PayPal. They are reporting directly to the IRS. It includes all your payments, including reimbursements. For 21-22, I had everything double-reported as I still got 1099s from the companies. My accountant has spent the last six months straighting this out. Read about the new laws on third-party reporting and be aware. It should not be happening, but it is. As always, check with a professional.

If you are keeping your own records, which if you are not you should start to do right now for 2024, the 1099's you get, double or otherwise, should not come into play at all. All of us who are mystery shoppers should be treating this as a business which means keeping track of all expenses and income with detail. You will need this accounting if you ever get audited. So if you are just handing your tax accountant a shoebox full of 1099s and random receipts early Jan is a good time to clean up your act.
Many of us use spreadsheets and there are examples of these on I believe the New Mystery shopper tabs. I have an excel spreadsheet where I jot down each expense (including miles) for each job I do with dates. You can sort it by MSC. Then it is easy to just sort at the end of the year and see how much you actually earned and spent for each MSC you work for. If you are getting a 1099 you can compare your total with the one on the 1099 and can easily see if they have included reimbursements ( the total will equal your total for both fees and reimbursements or near to it) . You can ignore the one from paypal if it is different or combines many different msc in one. Just use your own figures if you have accurately recorded them. If there are big differences between your figures and the 1099 you received go the the msc website where they usually will have a listing of each job you did and what you got paid. Maybe you missed inputting one and you will discover it that way.
Also be aware that you will not receive a 1099 if you earned under $600 from any one msc. But you did earn that money and you DO need to report that as income on your IRS forms. Income is income whether or not they send a 1099 to the government.
You are entitled to deduct expenses for your business. The 1099 sent to you will not have any of that listed. They do not know how far you had to drive to do the job etc. So it is on you to keep track of that so you can deduct any legal expenses you had. While you are keeping track of that for each job anyway it is easy to add columns for fees and bonuses and reimbursements.

I have a difficult time believing "Rubi".

First of all, the reporting requirement up until this year pertained only if you were paid over $20,000 THROUGH PAYPAL OR VENMO. If they were really paid over $20,000, they would have been VERY busy doing mystery shopping. I'd love to know where they are getting these huge payments from so I can sign up.

Second, even if they were lucky enough to get paid all of this money THROUGH PAYPAL OR VENMO I would really like to know what the problem is their accountant has to sort out. As you say, if you are keeping track of your income and expenses, which is pretty easy, what PayPal/Venmo is or isn't reporting should be irrelevant. You only have to report the income you recieve ONCE. Period.

Here is an article breaking all of this down.

[www.cnet.com]

The requirement this year is if you received payments though PayPal and Venmo over $5000. Eventually they plan to lower it to $600.

Whatever they do, it has no effect on the way anyone will report their income this year or beyond.

None.

Period.

Edited 5 time(s). Last edit at 01/03/2024 07:12PM by HowardJuice23.