I plan on keeping all my paperwork for at least a year from the shop date, and at least until tax season is over. I have everything nicely organized in a massive folder thing, so it's no problem to hang on to it for a while. Is it typically okay to get rid of it after a year/tax season? I don't think any MSCs would need over-a-year-old paperwork, but what about if the IRS ever decided to audit me?

And when I do get rid of it, what is the best way to dispose of it? I'm assuming I can't just throw it out. I was thinking about shredding it, but I'd have to take out all of the staples (I think?) and that's a LOT of shredding.

It is probably best to hang onto materials for a few years if you are claiming that shopping is a business using a Schedule C. Generally I am hanging onto the folders of papers for 5 years after filing the return on them and my spreadsheets of work done get printed and filed in the folder with my copy of my tax return but will remain on the computer forever.

I personally find that 6 months of folders of papers readily accessible is more than adequate to meet possible shop questions. Then the folders get bundled in groups of 3 months and put moderately out of the way. When that space gets full it is time to throw the bundles in a bankers box and stick them in the attic. When a box goes up, the oldest box comes down and that is going to be 5+ years old. I burn the old records as I am not about to go through shredding 5 pages at a time and hauling out the shreds. I have an old charcoal grill that is great for that--just start the fire with twigs and small branches on a day when there is not a lot of wind and I can dispose of a year of stuff in under an hour.

If you are not claiming shopping as a business (i.e. just straight claiming the income without any business deductions) then probably a year or two will handle the needs of both the companies you work with and IRS.

So, are you saying you only keep about 6 months worth of, say, 2013's mystery shops? And then get rid of the other months? I'm not sure what you mean by the groups of 3 months, either. I'm interpreting it as filing away two folder groups for 2011, two for 2012, two for 2013, and so on..not sure if I'm on the right track.

I do plan on filing a Schedule C, yeah. Also, while I'm here, I was reading your comments about doing taxes and I was wondering- I think you mentioned that you typically just file away the 1099's you receive and use your own records to record the fees & reimbursements. But you also do your own taxes. I was planning on attempting to do the Schedule C on my own, but then bringing it into a preparer (it's free for military) so they can check over everything. So would I need to bring in all my records for them? 1099's, folder of paperwork, receipts, etc...or maybe just bringing in my spreadsheet would be enough?

No, I'm saying I keep at least 6 months in my file cabinet drawer by my knee. It is a small space and there are other things I want to keep there as well. So when I have 9 months total in there I pull the oldest 3 months, throw them in a Tyvek envelope or tie them with string and move them to a box in the bottom of the closet. There will be 4 bundles per year: Jan-Mar; Apr-Jun; Jul-Sept; Oct-Dec. When the box gets full (takes a few years), it goes to the attic and the oldest box of paperwork comes down for disposal.

My spreadsheet shows who paid me for each job and how that breaks out as fee, bonus, reimbursement, unreimbursed expense (if any), when I got paid and mileage. That is really all I need for income and specific job expenses to do my taxes. I also have information of other legitimate expenses for my business during the year such as any computer things, supplies, health insurance cost, cell phone cost, etc. The records you use to prepare your Schedule C would be what the tax person would need to see to check it for you.

As for 1099s. . . If you are a Cash accounting business you claim as income only money received in the calendar year. If the company cuts you a check on 12/30/13 and put it in the mail, you will not receive it until after 1/1/14. They will claim it as a 2013 payment on your 1099 and you will claim it as income for 2014. Your 1099 for 2013 will show more earnings than you will be claiming for 2013 (unless, of course, they did that to you at the end of 2012 as well). And trust me, some of these guys play in the cracks with payments. I got a check in late January with a current postmark and a check dated 12/30/13.

If you are an Accrual accounting business you don't care when the check was cut because for 2013 you will claim all income earned in 2013 whether it was paid in 2013 or 2014. Once again, the 1099 will not match if they paid me in 2013 for some 2012 work or did not pay me for some 2013 work until 2014.

When I receive a 1099 I look at it to see if it is in the right ballpark and go from there. If from my records (I am Accrual) I see that I need to claim $12,345 in income for 2013 and I have 'right ballpark' 1099s totaling $2000 I simply claim the $2000 worth of 1099s received without disputing them and adjust the rest of the claimed income back to $10,345. Is it correct? Well, probably not. I could spend a lot of time and energy disputing 1099s, but unless they are horrendously wrong it just is not worth the time or effort. Eventually I am claiming the correct amount of income for MY business whether it is as 1099ed income or just freely claimed.

..and here Market Force says "destroy all documents when paid"

:O

So following your information here and in your mystery shopping taxes thread, I have successfully filed my taxes! I even followed along with your instructions / the IRS instructions and did my own Schedule C (I wanted to be prepared and informed for when I went in to do my taxes) and the preparer ended up just copying that because he wasn't sure how to report my MS income. This was my first year filing my own taxes and reporting MS income, and it seemed so daunting at first but reading and rereading your information really helped, and it ended up not being as difficult as I thought it would be. Thank you for taking the time to type out and explain everything for us newcomers to use as a guide! I would have been lost without it, and my taxes would surely have been messed up if I hadn't known what to tell my preparer.

So back on the original topic - I now have my large blue folder of MS and tax information that I will keep for 5+ years. I don't know where I will be living 5-7 years from now, hopefully by then I have something similiar to a charcoal grill and I can just burn everything. But if anyone else is wondering, I also found a good company (local to me, though, but there are probably others) that will shred things on site. They're eco-friendly and don't charge an arm and a leg to take your papers. Hopefully more of these will pop up, because that's pretty ideal for anyone who has a lot of papers (and not just MS papers but any junk papers lying around) and wants a fast, cheap, and efficient way to get rid of them!