I relied on the advice given on the "Taxes and Mystery Shopping" thread by Flash that said only shop fees, and not reimbursements, were taxable. Because of this I got a 1099 from a MS company because $70 of expenses put my income $18 over the $599 limit. I did not want any 1099s! I was very careful not to accept shops that I thought would cause me to have earned $600 or more from this MS company. I am going to communicate with someone at the MS company to make sure this was not a mistake, but as it is now, I have to report this income because I relied on what may have been incorrect advice given by Flash. I just wanted to warn people that they should check with mystery shopping companies and tax preparers themselves to find out exactly what is going to be reported to the IRS as actual income. I wish I had.

I am also rather annoyed to find out that when purchases are required for shops and you get reimbursed for them that it automatically becomes income. That is just not fair. Shopper beware!

Edited 3 time(s). Last edit at 01/25/2014 12:37AM by nycrocks.

You should always report all your income with or without a 1099. Getting audited by the IRS and having to pay back money is not fun. Your purchases will count as a deduction from what I understand.

nyrocks, Flash's posts are correct: reimbursements are not taxable, only income. However, Flash's posts make clear that you are required to pay taxes on ALL INCOME regardless of whether or not you receive a 1099. If you were careful to limit your income for each company because you did not plan to pay taxes unless you received a 1099, that would be tax fraud. Deliberate tax fraud. How many companies have you worked for and carefully limited your earnings to keep from receiving a 1099 so you won't have to pay taxes?

I'm glad you warned us. If you don't realize that you have to pay taxes on ALL income, then I am warning you. Go add up all your income and update your tax form so you can correctly complete your taxes, paying taxes on everything earned. Not paying taxes on all income is fraudulent.

If you know that taxes are due on all income, and you are deliberately choosing to pay taxes only on the income that is documented by a 1099, you should be ashamed of yourself.

Think about it this way. If you were allowed to earn $599 each from multiple sources is it conceivable working for 100 different companies could give you a tax free income of $59,900. What if a plumber or electrician never bid a job over $599. Do you think they would have to pay taxes? Some MSCs do lump together fees and reimbursements. It is your responsibility to keep track of the purchases which are then deducted along with things like mileage. Just today I received a notice from a company new to me as of last year. They were letting everyone know their 1099s would included every dime they paid us. I was reimbursed for a lot of travel and documented every reimbursable expense and all of my mileage. Personally I am just as happy they are doing it that way since their mileage reimbursement is below the government allowance. It is easier to declare it all as income then take the full deduction.

nycrocks I was a tax agent for 12 years and let me assure you that Flash is 100% correct. You have to declare every single dollar you earn, there isn't a magic $600 figure for that. That is just the point where the MSC is required to report it but if you were audited you will have to explain every dollar you earned.

Secondly, is it possible that the reimbursement you were sent a 1099 for wasn't like some companies where they pay you a commission and then an allowance for gas? For example, Krispy Kreme shops are a set amount and that includes the cost of the doughnuts.

Not reporting income to the proper authorities will get you nothing but absolute misery down the road. Liens on everything, frozen assets, ruined credit... all because you didn't want to pay the $72 in taxes??? No thank you...

Words to live by....

If you don't want anyone to know.... DON'T DO IT!!

I have another source of income and I pay plenty of money in taxes, so please, spare me the judgments. I never said I wasn't planning on paying taxes on everything I earned. I have my own reasons for wanting to avoid 1099s that aren't about reporting income to the IRS. I was mostly trying to let people know that reimbursed expenses can count toward your income for getting a 1099, whether people are aware of it or not, and Flash said these expenses were not reportable income. I understand now that you can declare a deduction based on these expenses so I thank whoever gave that information.

Tell me every time someone wins a little money in a slot machine or sells something they already paid for once plus sales taxes on via ebay that they report these things to the IRS, even though they're supposed to.

Edited 4 time(s). Last edit at 01/25/2014 04:07AM by nycrocks.

Ok, take it easy... you may not have said that you were not planning on paying taxes on everything you earned but you did say you were careful not to get a 1099 and seem extremely upset that you did get one. It is not out of the realm of possibility to assume you were trying to avoid claiming the earnings from your post.

You also have to understand that with the government trying to stick their noses into the business so much so that they are trying to put an end to the mystery shopping self employment business that those of us who use this type of business for a solid income get defensive when someone tries to hide the income made. This gives the government fuel to use to shut down this type of independent contractor. This would be devastating to some and make it very difficult if not impossible to continue this business.

Now where this MSC that sent you the 1099 has put everything paid out into one 1099. It's simple (well if you kept records it will be) gather your mileage, your reimbursements and expenses (pens, paper, tape and the new wallet you got to hold all that money in... just kidding, trying to lighten this up a bit) you will be able to knock this income down to a manageable tax and put together with your other income may negate it altogether.

I hope this helps, not for nothing but the post is actually substantial because some new shoppers may not know that some MSC will lump everything together.

Have a nice day....

No doubt most people do not report every slot machine or lottery win although frequent gamblers will report winnings and offset them with their losses. Right or wrong, the difference is those happen occasionally for most people while MS income can be more substantial and regular. Bottom line is the post from Flash was not wrong. You are not liable for the taxes on the reimbursements and I am not sure why the 1099 is such a big deal. I get them from some companies and not from others. Either way it doesn't change what I did or didn't earn for the year.

I haven't received any 1099s yet, from either my FT job or my MS'ing business. There are quite a few companies that I have earned more than $600 from. Are they running late because of the government shutdown this past Fall?

Kathee,

Thank you for understanding. People do need to know this can happen with some MSCs. It is being looked into by someone at the MSC.

Edited 1 time(s). Last edit at 01/25/2014 07:47AM by nycrocks.

LisaSTL Wrote:
-------------------------------------------------------
> No doubt most people do not report every slot
> machine or lottery win although frequent gamblers
> will report winnings and offset them with their
> losses. Right or wrong, the difference is those
> happen occasionally for most people while MS
> income can be more substantial and regular. Bottom
> line is the post from Flash was not wrong. You are
> not liable for the taxes on the reimbursements and
> I am not sure why the 1099 is such a big deal. I
> get them from some companies and not from others.
> Either way it doesn't change what I did or didn't
> earn for the year.


I understand but expenses that are required to complete a shop should not be considered income. Do I really want to get into trying to explain that I needed to buy clothing for a job that won't be used for work? That's what the expenses were. I don't have any restaurant reimbursement expenses but meals are another area where the IRS has strict rules. It just gets a bit sticky. I'd rather say I earned $550 as cash than go through trying to say some of my reported income is actually a required expense that will surely raise eyebrows if I were to get audited.

What about when you get parking expenses reimbursed separately and evaluating the parking lot is part of the shop? Whether you can deduct the expenses or not, there is just something inherently wrong with requiring the shopper to pay expenses to do the shop and combining what's reimbursed with shop fees as income. If nothing else, it's more paperwork, and nobody wants that!

I was never fond of purchase and return shops but when shops require the returns be done on a different day there's another example of a required expense being termed as income. I guess it's just the principle that bothers me most. You are allowed to claim unreimbursed work expenses on your 1040 or Schedule C but you are not allowed to actually claim reimbursed expenses per se as far as I know. You'd just have to claim the expenses as though they were not reimbursed.

Edited 1 time(s). Last edit at 01/25/2014 08:27AM by nycrocks.

I certainly understand your frustration when you thought it was one thing and it didn't happen that way. A lot of the time it depends on how the MSC reimburses you. As you mentioned elsewhere, the doughnut shop and the grocery store shop where they don't actually say they will reimburse you for a specific amount but say it is included in the shop fee will include that on a 1099 and then you have to deduct it back off. However, if it is a straight out "This shop pays $10 plus a $1 reimbursement" then your 1099 should not include the $1. However, not all MSC are that savvy when it comes to sending out their 1099's.

I just posted some specific examples/questions on the Tax Question thread in this same category. Maybe I should have posted it here instead. But I am not going to double post.

When I got audited they wanted to do what was called a "desk audit", this is where you just mail in a copy of everything and they look through it. I chose to do an "in person" audit... (they must have thought it was weird when I first called to request it) but here is what I told them.

If I have to make copies of all the job sheets and then make copies of all the receipts this was going to be a HUGE deal. I then explained the job. I get a CPI that states everything I need to do... this includes the reimbursement (for some companies that lump things together). An "in person" audit would allow me to explain why I am deducting a .99 cup of coffee as an expense rather than in the food section of the deductions.

In the food section only 50% of the total is deductible where as if it was part of the job requirement then it needs to count as 100% as it is required for full payment of the job. Same as when you do your gas... you can not double deduct. If it is part of the job that you buy $2 worth of gas you can not then turn around and put that $2 in car expenses.

It is a huge bookkeeping task but it is something that is a reality, especially for those companies who lump fee and reimbursement into one category.

@ Kathee70 ~ I have kept track of my shop fees, my bonuses, my reimbursements, what I spent for the required purchase and my actual mileage. I was just going to add up each column/category and give the figures to my tax preparer. Is this going to work properly? Did you see my post under the other tax thread?

I am far from a tax person but I have some experience in Forensic Auditing. Here is what you should do to make it easier to differentiate for both you, your tax guy and your auditor (when it comes time)

If you get gas as a reimbursement, you put that under your reimbursements. If you get $5 for gas and it is only $2 reimbursement then note the $3 for gas costs as such on your spread sheet, the important thing is not to claim $2 for the job (because it is required) and then the whole $5 as a gas deduction.

I will look at the tax post next.

As great as spreadsheets can be, I would be lost without Quicken. It allows me to categorize every purchase and even split them so $5 in gas would be categorized as a $1 reimbursed expense and $4 would be charged to fuel. I can do the same thing with money coming in. It basically functions as a checkbook only when I balance it each month it is just a few clicks and done. At the end of the year I run a report which can go to my tax guy along with my mileage and 1099s.

OMG. This is almost enough to make me want to quit. I don't have a problem reporting income, but all this seems like it can make things a headache, especially since hubby and I do our own taxes. Ugh.

sasukhram Wrote:
-------------------------------------------------------
> OMG. This is almost enough to make me want to
> quit. I don't have a problem reporting income, but
> all this seems like it can make things a headache,
> especially since hubby and I do our own taxes.
> Ugh.

I couldn't agree more! I only do a few shops a week but I am probably going to avoid shops that require purchases and offer expense reimbursements together. I didn't really want the merchandise. I just wanted the fee. If I had to do MS full time I would go crazy.

I don't know how MS companies get paid by clients (i.e., whether flat fee or a fee plus expenses), but I would venture a guess that a client would be more likely to separate reimbursable expenses from MSC fees than lump them all together. The client can declare the expenses on its taxes and the MSC would not have to count reimbursements as income. Of course there may not be absolutes and variables between clients and MSCs are likely to occur. I work in law and rembursable expenses are never considered income for attorneys.

Where I would really have a problem is if I did an integrity shop where the reimbursements counted as income, since merchandise is not kept and shipping fees are a necessity. In what universe is getting repaid for a required expense when you gain nothing from it justified as counting as your income? I guess anything can get dumped onto a mystery shopper. Fortunately I have not had 1099s with the MS company I did a few integrity shops for and can report the shop fees only.

I still don't get your problem. Reimbursed expenses are not income. Why is it so difficult to list $15 income and offset it with the $5 deduction? Did you track your expenses all year or are you being forced to now recreate the records?

It's not difficult. It's the principle behind the practice that bothers me. I'll get used to it. Last year was my first as a MS.