I don't remember whether they do or don't because it has been a number of years since I was willing to work with them. But the principle is the same.
A 1099 is an informational return. It is not attached to your tax return when you submit it. Very rarely is a 1099 going to match with your records as it is what they paid you during the calendar year. (See the whole discussion of cash versus accrual shoppers in the New Mystery Shopper section of the forum.)
Go by what your records show because reimbursements are a business expense and not taxable while fees and bonuses are taxable. For me returns are easiest to simply claim every cent received (fees, bonuses, reimbursements) and then deduct out the reimbursements, mileage and other expenses.
It is generally not worth your breath or frustration to try to get some of these companies to do their 1099s correctly because they are 'doing what our tax accountant told us to do'. Yeah. Either you misunderstood him or you need a different tax accountant! I even had one turkey include his PayPal fees as payment to me because 'that is what my tax accountant told me to do'. Under that same philosophy I guess the editor's pay that brilliant tax accountant might decide was a shopper's expense, though I would sure hate to give them any ideas.
Everything the MSCs pay us is reported. We are one of their expenses when they file their taxes.
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I count every penny then deduct from there as stated above... I find it the easiest and least frustrating. This way if I am audited I bring in my spread sheets with everything neatly separated and easily explainable. I have been doing mystery shopping for a number of years now. The last two years I did not get audited but the other years (every year) I did so be prepared.
> Everything the MSCs pay us is reported. We are one
> of their expenses when they file their taxes.
They might deduct everything, but the only thing the IRS knows on a shopper by shopper basis is the amounts on the 1099's. When I run 1099's for a business client, the program looks for the flag "eligible for 1099" (which weeds out vendors who are corporations), certain categories (contractor payments) that are 1099-eligible, and the total amount paid being $600 or more per EIN or SSN. If it is under $600, no 1099 is created and the other details are not reported to the IRS, they are just lumped together as one deduction on the tax return.
However, if a company is audited, there is nothing to stop the IRS from learning during the audit who else might have been paid who didn't get a 1099 and if they have reason to believe a recipient is not reporting income, they could conceivably audit the recipient as well. But I can't imagine then bothering to do that to chase down the tax on $599 or less unless they encountered something along the lines of the same person being paid under more than one tax ID -- such as would happen if I set up two shopper accounts, one under me SSN and one under me EIN -- and the total between them was over $600 but no 1099 was issued because each was under that amount. If they suspected this was done to avoid getting a 1099, they might follow through to see if the money was reported by the recipient.
The best thing to do is report all money received as income, deduct all money paid out on a shop as a deduction, and not worry about what was reimbursed and what was on the 1099. As long as the total income you report is at least as much as the sum of your 1099's, the IRS isn't going to know or care how much was from Trendsource and how much from anyone else.
I wasn't looking to avoid reporting any income. Thanks to everyone who implied I was a tax dodger.
I was trying to find out whether the amount they would report as paid to me was just the fees or the total amount all lumped together. And if so, how do you handle it on your tax return because if they lump fees and reimbursements together it is not an accurate number for income.
It just seems like it is asking for an audit if you report less income from an MSC than they report on the 1099. Which would be the case if the MSC throws everything in together yet you count just the shopper fee as income.
Surely you are not counting reimbursement as income and then taking it out as expenses?
That is exactly what Flash is doing. I, on the other hand, report only the fees and if the 1099 includes reimbursements (as it should not) there will be a difference between it and my report of fees. I just jot a note on the return saying that the 1099 is incorrect due to including reimbursements. No auddit...not even any questions raised. Both Flash's method and mine would yeild the identical taxable income, so the IRS cares not. It's no secret to them that companies make huge errors in 1099 reporting!
Based in MD, near DC
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I don't think anyone was suggesting you were a tax dodger. Keep in mind, other people than the OP read these threads. I gave a comprehensive reply to avoid someone coming here and thinking "then I don't have to report it" if we were to just tell you, "yes" or "no" without explanations.
As wales said, both approaches are okay as long as the net result is a correct computation of the net income. I suggested my approach (which is the same as Flash's) because it eliminates the need to do different accounting based on what the MSC will do (include or not include the reimbursements as income on the 1099). If you count every penny as "income" and then just deduct all your expenses, you will get the same result as if you had extra columns in your spreadsheet for "reimbursements on 1099" and "reimbursements not on 1099". For probably every one of us, our total income for the year is going to be more than the sum of our 1099's because we won't get at least $600 from every company. If your 1099's total $2000 and your reported total income is $3000, the IRS is happy. If your 1099's total $3000 including reimbursements and you only put $2500 on the return because you're subtracting out the reimbursements from the income figure instead of putting them as an expense, you will get a letter from the IRS asking for tax on the $500 difference. Then you have to write them a letter saying, "Part of the 1099 was for reimbursements that totaled $500." That could conceivably result in a request for proof and details.
You avoid all that by just keeping everything you got paid in one total called "income" and put all the money you laid out in another total called "returns and allowances" or "misc expenses."
(Keep in mind, you can always get tagged for a random audit and will have to provide details of everything if that happens.)
You should also keep in mind that you report income in the year you receive the money, not the year you earn it, unless you are doing accrual accounting (most taxpayers don't). This is especially important for mystery shoppers because at the end of the year, you may not know for a couple of months if you will or won't get paid for something but you might want to get your tax return done before that. You should deduct your expenses in the year you paid them, and claim the income and reimbursement in the year you receive the check. Otherwise if you end up not getting paid for something, you will have already deducted your out of pocket costs and the date on the receipt will match the year of the tax return.
I know that's a lot more than you asked, but tax questions are rarely "yes or no" questions. There's more gray area in the tax code than you'll find on a whole herd of elephants.