Mystery Shopper Taxes & Reimbursements (Ask The Coach)

"Question: I get confused when it comes to reimbursements--what gets declared, and what doesn't?"

(Editor’s Note: Here is a response I have received from the past from a person who knows more about taxes and its relation to mystery shopping than I do. I'll pass it along to you to give you food for thought when you work with your tax professional, as I am not a tax advisor and cannot advise as to the accuracy of the info and her reply may be dated since it is from 2002. How's that for a disclaimer)?

Answer From Melanie: Depending upon the nature of the reimbursement, it may or may not be considered income. For example, if you are reimbursed for priority mail, that's not considered income, but you also cannot then claim the priority mail postage as a deduction.

Regarding reimbursements such as restaurant mystery shops, according to Ruth Perryman, a tax expert on mystery shopping matters (e-mail: perryman@web2riches.com), reimbursements that are "necessary and ordinary" are not taxable. Since it's both necessary and ordinary to purchase a meal in order to evaluate a restaurant (how can you
write your report otherwise), any reimbursement is therefore non-taxable.

The only time a reimbursement is taxable is in the rare cases when the reimbursement is more than you spent (there is a MS company that pays $5 reimbursement for a fast food meal that always costs less). In this case, you'd have to pay taxes on the reimbursement amount
that exceeds your purchase amount.

One caveat, if you receive Form 1099 that includes the reimbursement amounts, you can do one of two things. Preferably, you should contact the company, tell them they sent you an incorrect 1099 and ask them to send a revised one (I say preferably because educating MS companies help all mystery shoppers). If you choose not to go this route, then you should claim the full income shown on the 1099 and expense the reimbursement amount on the 1099. In other words, even though you claim it so your business income matches your 1099, it still has no impact on your taxes.

(Copyright 2002, Ruth Perryman)

(Editor's Note: This is a very interesting perspective, however, once again please be sure to check with your own tax advisor for his/her opinion on this matter and any changes in IRS rulings).

Have a great day and happy shopping!

“Taking the mystery out of professional mystery shopping”—Melanie Jordan
http://www.mysteryshoppercoach.com

Copyright for all items except Ruth’s response, 2005 Melanie R. Jordan E-Publishing