Hello - Last year was my first year doing mystery shopping. I filed for a tax extension a few days ago, but still having a headache figuring out what to do.

Right now....I have no idea how to calculate what I made mystery shopping, despite keeping a long spreadsheet of my shop details. I didn't get 1099s, because I didn't make over $600 for any company.

Can someone answer these problem areas for me?

1.) First, what do you do if your shop had a reimbursement and a fee of some sort? Does the fee only count as income or do you have to count the reimbursement as income too in your tax filings?

2.) What do you do with reimbursement-only shops? These are the ones where you don't get a fee on top of a reimbursement for expenses. For example, if I ate out at a restaurant and was reimbursed $40.00, would that count as income if I did not get a fee or any other compensation for it?

Also, what to do if I went over the reimbursement for these types of shops? Do you subtract what you went over from the reimbursed amount to count as income? Quick example: We ate $42 worth of a meal for one shop, but only got reimbursed $35. Do you subtract what you went over from the $35 so it's $27 profit? In other words, $35 - $7. These reimbursement-only shops are giving me a headache!

Lastly, have any of you used Turbo Tax for filing mystery shopping taxes? If so, was it worth it vs. going to a live professional?

Thank you all in advance for your help everyone!

Hi spfeedie,

First of all reimbursements are never considered income. How you handle them is up to you. I report them as part of my Gross Income, and then subtract them as reimbursed Expenses. I do this because you will find that at a later time, if you make enough to receive 1099s, not all MSCs only include shop fees, some also include the reimbursed amounts. The other way to report is to just report the fees and not reimbursed amounts in your Gross Income. Reporting this way, you would not report them as Reimbursed Expenses either.

As for overages, there are many opinions on those. (amounts paid in access of the maximum reimbursement). Personally, if I only go over by a buck or two, I include those as Unreimbursed Shop Expenses. I also include any overages if I can not find anything under the maximum reimbursement amount and a purchase is required. Others on here have argued that the overages are on us, unless the second condition above applies.

For reimbursement only shops, you can either include the reimbursement in your Gross Income and then write the cost off as a Reimbursed Expense or just ignore them all together. Once again, later on you may find MSCs may send you a 1099 which may include the Reimbursed Amounts for Reimbursement only shops.

I use the online H&R Block for my taxes. However, I do all my own calcalations first. I know others on here use Turbo Tax I will let them comment on its use.

There is a great post pinned in the New Mystery Shoppers Section of the Forum which addresses Taxes, you may want to take look at it.

(I am not a tax preparer. I have gleamed all of this from this forum.)

First, great job on filing extension and keeping yourself aware on deadlines.

Next, I'd suggest to organize your earnings first.... In other words, let's keep it simple. There are 4 different types of jobs when it comes to this business:

1. Lump sum fee with shop-related expenses. So any expenses related to the project is INCLUDED within that lump sum fee.
2. Fee and reimbursement separated. So you will be paid a fee + a reimbursement. Any amount over the reimbursement limit(s) (if any) will not be reimbursed.
3. Lump sum fee with NO shop-related expenses.
4. NO Fee and reimbursement only. Any amount over the reimbursement limit(s) (if any) will not be reimbursed.

Take the time to organize the your numbers into the above categories above.

Afterwards, think of any tax-related expenses that can be deductible:

1. The obvious on is mileage applicable to your vehicle to perform that job that is not part of your personal, typical W-2 job work route, etc. if you're obtaining this tax benefit in this manner vs. 'ACTUAL' vehicle expenses, which I understand that many shoppers utilize since it benefits them more than the flat-rate mileage unit cost.
2. Any non-reimbursed expenses necessary to perform the job like parking, tolls, hotel stays, office supplies, etc.

Lastly, it can be recommended to at least try out an accountant to at least get a better grasp on filing taxes on your work this year if you've never done it before. It's better to at least learn the ropes from someone if you're not familiar instead of taking your shot with TurboTax on your own.

TurboTax is as good as most of the franchised tax folks and a lot better than some, all at a better price. It has a Q&A format that you can elect to use that will then place your answers into the proper boxes on Schedule C and Form 1040.

I used Tax Act because my bank (an account I opened for a shop) paid for it. I used to just do it all myself. I have no idea why, LOL.

I found TurboTax to be quite a bit more expensive on Amazon. I usually use H&R Block. I got a CD from them and when I installed the software from CD it wanted $5 more than Amazon wanted for the same software. I closed out the install and it took me to a webpage and asked why I didn't install it. I marked "Found it cheaper somewhere else" and it redirected me to another webpage where it offered it to me for $24.99. Amazon wanted $54.99 and their install wanted $59.99 for the same program. TurboTax was $74.99 for the same features if I'm not mistaken.

1) I count only the fee as income. Others count the fee and reimbursement as income, and then deduct the cost of the purchase as an expense. It works out the same, and both are valid methods.

2) I do not consider reimbursement-only shops as a business activity, because I do not intend to make a profit on those shops. I claim no income or expenses, and do not take them into consideration when filing taxes. Others claim the reimbursement as income, and then deduct the cost as an expense, so it washes out.

3) When I go over the reimbursed amount, I usually claim the extra amount as an expense. If I do a conveneince store with a $1 reimbursement and spend $2 on a bag of chips, I count the extra $1 as an unreimbursed expense. Sure, I could have bought a pack of gum for 25 cents, but in my professional experience I know this can give me away as a mystery shopper, so I feel a more typical purchase was justified. On the other hand, if I do a shop with a $5 reimbursement, and there are plenty of items under $5, but I buy a $20 item I really want, I do not count the extra $15 as an expense.

4) Reimbursement-only shops that go over. In your example, you spend $42 with a $35 reimbursement. I would just count this as break even and not report income or expense on the shop. If I used the other method, I would record $35 in income and $35 in expenses. I would not deduct the extra $7 as an expense, because I cannot legally claim a loss on an activity where I did not intend to make a profit. Sure, there are rare exceptions where maybe you are "getting your foot in the door" with an MSC, or it was a combined fee and reimbursement and you did not realize how pricey the items were, but those excuses can be used only so many times.

5) The overall queston over whether reimbursements are taxable is largely a matter of opinion, and valid arguments can be made both ways. I personally do not count them as income, mainly because I pay less in taxes that way. But no one can point to a tax court ruling that directly addresses this issue, although some report passing an audit doing it that way. In fact, a few people might be better off tax-wise counting reimbursements as income, and they would probably be perfectly okay doing it as long as they could show the activity was ongoing and contributed substantially to their livelihood. Best check your situatioin with a tax professional before trying it that way, though.

@mystery2me wrote:

1) I count only the fee as income. Others count the fee and reimbursement as income, and then deduct the cost of the purchase as an expense. It works out the same, and both are valid methods.

2) I do not consider reimbursement-only shops as a business activity, because I do not intend to make a profit on those shops. I claim no income or expenses, and do not take them into consideration when filing taxes. Others claim the reimbursement as income, and then deduct the cost as an expense, so it washes out.

3) When I go over the reimbursed amount, I usually claim the extra amount as an expense. If I do a conveneince store with a $1 reimbursement and spend $2 on a bag of chips, I count the extra $1 as an unreimbursed expense. Sure, I could have bought a pack of gum for 25 cents, but in my professional experience I know this can give me away as a mystery shopper, so I feel a more typical purchase was justified. On the other hand, if I do a shop with a $5 reimbursement, and there are plenty of items under $5, but I buy a $20 item I really want, I do not count the extra $15 as an expense.

4) Reimbursement-only shops that go over. In your example, you spend $42 with a $35 reimbursement. I would just count this as break even and not report income or expense on the shop. If I used the other method, I would record $35 in income and $35 in expenses. I would not deduct the extra $7 as an expense, because I cannot legally claim a loss on an activity where I did not intend to make a profit. Sure, there are rare exceptions where maybe you are "getting your foot in the door" with an MSC, or it was a combined fee and reimbursement and you did not realize how pricey the items were, but those excuses can be used only so many times.

5) The overall queston over whether reimbursements are taxable is largely a matter of opinion, and valid arguments can be made both ways. I personally do not count them as income, mainly because I pay less in taxes that way. But no one can point to a tax court ruling that directly addresses this issue, although some report passing an audit doing it that way. In fact, a few people might be better off tax-wise counting reimbursements as income, and they would probably be perfectly okay doing it as long as they could show the activity was ongoing and contributed substantially to their livelihood. Best check your situatioin with a tax professional before trying it that way, though.

It's interesting the way you wrote this. I use reimbursement shops for a variety of reasons, whether I like the reimbursement of items or services I'm getting and often, I like to combine additional reimbursements to maximize my earnings such as paid parking at the airport, toll expenses, etc. The prime example was a recently trip where I was able to get the same parking expense reimbursed by three separate MSC's because I had shops in the area covered by 3 different MSC's, but all covered parking expenses for me, as a 'bonus' in a way. If you neglect to consider reimbursement only shops as part of your business activity, I'm guessing you never double dip on reimbursements, where ethical and allowed?

Just as an added bit of information regarding Tax preparation software, I have used the TurboTax Online service/software for a number of years.
I've used the online version free for a number of those years. Previously, I purchased the software. As I now understand it, if your income is less than $60,000 pre year, the online tax software is free. The $60k amount was something I heard today on the radio.
TurboTax reminds me every year when tax preparation time occurs. I log in, it recognizes my login/password and takes me to the service. It remembers previous years and draws any information from the previous year's returns. I've never had a problem with it.
It is referred to as TurboTax Free Edition. If it does find that you are not eligible for the free version, it will ask you for a fee.

After decades of Turbo Tax, I now use TaxAct because TT has gotten extremely greedy. The interface is easier, too. (Correct me if I'm wrong, but I think if you file a Schedule C, you're no longer eligible for free filing regardless of income.) One thing I noticed was that their charitable deduction calculator is much more in line with what thrift shops actually charge. I think TT uses feebay in their ItsDeductible calculations. Could be a problem later on.

Go through all your mystery shopping companies and print out your shop logs. They'll usually have all the information you need there. If you did not keep a physical log of your mileage (highly recommended), you can use a mapping program to determine the mileage. I don't usually take off the other stuff for which I don't have a MS-specific receipt (phone, internet, etc). I know that some feel I'm throwing away money there, but it's not worth taking me out of the low-risk audit category.

As far as reimbursement, the IRS tax guy told me that if there is something available within the reimbursement, but I choose to get something else, the overage is NOT tax-deductible. That sort of screws me with some of the companies that don't really cover the whole cost of dinner for me and a guest. Think about it -- if I do a shop at a grocery that reimburses $14 and I spend $100, would you really think that would be deductible? If so, I'll do all my normal shopping on a mystery shop!

One of the big problems is that IRS agents are not held liable for what they tell you. So you can sit on hold for four hours to get someone on the phone, and you still won't get an answer that you can use. I'd like to see reform in the whole system (maybe a [fairtax.org]?).

spfoodie, if you haven't yet read this post, here's a link to help you gain understanding. [www.mysteryshopforum.com].

Most tax software has a step by step mode that will assist and walk you through your return. However, it will be much easier for you if you have a basic understanding before starting your return. Since you've filed an extension, you have time. Going forward, using the same tax prep software is advantageous, in that it will save, and carry forward information from the previous year, automatically populating fields into the current year.

Just to clarify, I file a Schedule C with the TurboTax Free software.

It is free.

I stand corrected, then. Interesting. I had to upgrade to continue. I thought it was the Schedule C.

Turbo tax for business is not free at least when I tried. However I have found a free business tax site for Federal and only $12 for NY State after discount code of 10% off. It is Freetaxusa.com. I have used Turbo Tax, Tax Act, and HR Block online in the past. I think they are all about the same. The deluxe upgrade is only $7 on FreeTaxUSA but I did not see the need for it. Walks you through everything.

I use FreeTaxUSA as well and it's pretty simple. I have tried H&R, TurboTax, Tax Act, etc., and FreeTaxUSA is the cheapest by far. It's very easy to set up the Schedule C's and enter vehicle mileage.

FREETAXUSA10 gets 10% off, but like Buff said, it's only $12 for the state filing and the $7 deluxe is not really needed unless you're worried about audit protection.

@Tarantado wrote:

It's interesting the way you wrote this. I use reimbursement shops for a variety of reasons, whether I like the reimbursement of items or services I'm getting and often, I like to combine additional reimbursements to maximize my earnings such as paid parking at the airport, toll expenses, etc. The prime example was a recently trip where I was able to get the same parking expense reimbursed by three separate MSC's because I had shops in the area covered by 3 different MSC's, but all covered parking expenses for me, as a 'bonus' in a way. If you neglect to consider reimbursement only shops as part of your business activity, I'm guessing you never double dip on reimbursements, where ethical and allowed?

You're right. I never double dip on reimbursements. Not because there is necessarily anything wrong with it, I just never have the opportunity. I do mostly rural areas and smaller cities. Hate big cities because of the traffic (and lack of bonuses, lol.)

@Lady Marius wrote:

Hi spfeedie,

First of all reimbursements are never considered income. How you handle them is up to you. I report them as part of my Gross Income, and then subtract them as reimbursed Expenses. I do this because you will find that at a later time, if you make enough to receive 1099s, not all MSCs only include shop fees, some also include the reimbursed amounts. The other way to report is to just report the fees and not reimbursed amounts in your Gross Income. Reporting this way, you would not report them as Reimbursed Expenses either.

Thanks very much for your help! And thanks to everyone too!

I think that sounds like a good idea to report as part of gross income and delete them as expenses later for the 1099 issue. I haven't gotten any, but if I ever do get a 1099, at least I know I won't have to do extra work figuring out what they put in it. Thanks again.

@mystery2me wrote:

4) Reimbursement-only shops that go over. In your example, you spend $42 with a $35 reimbursement. I would just count this as break even and not report income or expense on the shop. If I used the other method, I would record $35 in income and $35 in expenses. I would not deduct the extra $7 as an expense, because I cannot legally claim a loss on an activity where I did not intend to make a profit. Sure, there are rare exceptions where maybe you are "getting your foot in the door" with an MSC, or it was a combined fee and reimbursement and you did not realize how pricey the items were, but those excuses can be used only so many times.

Tyty for the informative post! I did wonder...when would anyone have a good reason to count reimbursements as income and also not write it off as an expense?

I remember reading online that some people do count them. This is the part I'm unsure about. If a person does not have to legally count reimbursements as income, then what's the reason why someone would do it? Is there some tax advantage to this or some special situation that I'm missing? I figure you'll have to pay more taxes if you do count them.

But some people said that they do count them and others day they don't. Again, this is for people who count them, but don't write them off as an expense. That scenario is one where I can't figure out why anyone would do?

@Tarantado wrote:

First, great job on filing extension and keeping yourself aware on deadlines.

Next, I'd suggest to organize your earnings first.... In other words, let's keep it simple. There are 4 different types of jobs when it comes to this business:

1. Lump sum fee with shop-related expenses. So any expenses related to the project is INCLUDED within that lump sum fee.
2. Fee and reimbursement separated. So you will be paid a fee + a reimbursement. Any amount over the reimbursement limit(s) (if any) will not be reimbursed.
3. Lump sum fee with NO shop-related expenses.
4. NO Fee and reimbursement only. Any amount over the reimbursement limit(s) (if any) will not be reimbursed.

Take the time to organize the your numbers into the above categories above.

Afterwards, think of any tax-related expenses that can be deductible:

1. The obvious on is mileage applicable to your vehicle to perform that job that is not part of your personal, typical W-2 job work route, etc. if you're obtaining this tax benefit in this manner vs. 'ACTUAL' vehicle expenses, which I understand that many shoppers utilize since it benefits them more than the flat-rate mileage unit cost.
2. Any non-reimbursed expenses necessary to perform the job like parking, tolls, hotel stays, office supplies, etc.

Lastly, it can be recommended to at least try out an accountant to at least get a better grasp on filing taxes on your work this year if you've never done it before. It's better to at least learn the ropes from someone if you're not familiar instead of taking your shot with TurboTax on your own.

Hi, Tarantado - This was an awesome post! I never thought to do that above!

Instead, I've been doing it by each individual shop and it's been so time consuming. I like tose four categories you listed above, as they are a great reference, and then using finding deductions later. That makes a lot of sense! Very helpful

@Mert wrote:

spfoodie, if you haven't yet read this post, here's a link to help you gain understanding. [www.mysteryshopforum.com].

Most tax software has a step by step mode that will assist and walk you through your return. However, it will be much easier for you if you have a basic understanding before starting your return. Since you've filed an extension, you have time. Going forward, using the same tax prep software is advantageous, in that it will save, and carry forward information from the previous year, automatically populating fields into the current year.

Ty Mert - I'm checking out the forum's posts that came up in search for taxes, but this thread and everyone's responses have been very helpful.

I wanted to thank everyone again and hope you all have been having it easier than me during tax time! Did everyone file on time? Did anyone else have a crazy time doing it their first year too? I've been used to just a W2 and simple filings, so this is very different!

@iShop123 wrote:

As far as reimbursement, the IRS tax guy told me that if there is something available within the reimbursement, but I choose to get something else, the overage is NOT tax-deductible. That sort of screws me with some of the companies that don't really cover the whole cost of dinner for me and a guest. Think about it -- if I do a shop at a grocery that reimburses $14 and I spend $100, would you really think that would be deductible? If so, I'll do all my normal shopping on a mystery shop!

One of the big problems is that IRS agents are not held liable for what they tell you. So you can sit on hold for four hours to get someone on the phone, and you still won't get an answer that you can use. I'd like to see reform in the whole system (maybe a [fairtax.org]?).

Hi, iShop123

First. Thank you for your helpful comments in this thread! I was reading your post here and just wanted to ask a follow-up. Can you give an example of what you mean for the part where you said that you might have gotten something else instead of what the reimbursement availability was? I wasn't sure what you meant by that and do worry about something like that if it applies to me too. The whole IRS auditing thing is a little scary, because this is my first time doing taxes for something like this.

@sp, what I meant was this - MSC allows a reimbursement of $125 for a meal for two. I can do that by ordering pasta or chicken, but my companion wants steak and I'm eager to please.. The bill comes out to $150. I claim $125 as reimbursement; the other $25 is out of pocket. At least, that was my understanding of his instructions.

(It's also why I've become pickier at choosing restaurant assignments.)

ETA: Completely out of pocket. It wasn't an expense necessary to complete the shop.



Edited 1 time(s). Last edit at 04/20/2018 09:46AM by iShop123.

@iShop123 wrote:

@sp, what I meant was this - MSC allows a reimbursement of $125 for a meal for two. I can do that by ordering pasta or chicken, but my companion wants steak and I'm eager to please.. The bill comes out to $150. I claim $125 as reimbursement; the other $25 is out of pocket. At least, that was my understanding of his instructions.

(It's also why I've become pickier at choosing restaurant assignments.)

By out of pocket, is that a deductible "expense" or just something that you completely write-off as something you yourself bought for your own reasons? I'm thinking you meant the latter, iShop123, but just wanted to be 100% sure.

I've read two more things online here that give me pause:

First, self-employed taxes are 15%?!! I saw someone talking about this in another thread and was shocked. Is there any reason why we would pay more than an employee. A business owner even has to take all the risk, whereas a paid worker gets paid regulardless of whether or not the business is successful or not.

Also, someone mentioned that paying taxes on reimbursements is essentially paying taxes twice. Could someone also explain this one? I couldn't understand the reasoning. I thought at first that maybe they meant you are paying sales tax on what you buy for a shop and then also paying income tax after you get the reimbursed amount back. But then that wouldn't make sense, since even if a person were to be paid $100 in regular wages, whenever they bought something with that $100, they'd also have to pay sales tax. So maybe I'm missing something about this double-taxation concept?

What do you do when you perform a shop, you bear the purchase expense, then the shop is rejected and you are not paid. Can you deduct the amount of your expense even if the shop was not approved?

@BarefootBliss wrote:

What do you do when you perform a shop, you bear the purchase expense, then the shop is rejected and you are not paid. Can you deduct the amount of your expense even if the shop was not approved?

That's a question I have too!

I'm finally done organizing my shops by fee type now!

@ Tarantado - For fee only shops where you have to buy something, but can keep the rest, do you just deduct the purchase like a reimbursement? Sometimes for these shops I actually end up using the item and dont' mind buying it, but other times it's an item I'd only buy for the purchases of that specific shop and not under any other situation.

Just wondering if this matters at all and what to do with these shops?