Income tax deductions for any business is a complicated topic that many people have a difficult time with. Just the thought of working on your taxes can be a nightmare. Even Albert Einstein once complained that the income tax was the hardest thing in the world to understand. However, if you have some basic knowledge of income tax deductions, it will help you make smart decisions for your mystery shopping business.
Any money you spend on your business (that you use only for your business) can be considered a tax write-off to reduce your taxable income. Office expenses like a new computer or laptop can be written off as well as a printer, ink, paper and anything else you use in your office.
Mystery shoppers are known to
drive a lot of miles to do assignments. That is a huge write-off
every year. Since the 2008 recession, the standard mileage rate for
federal income tax deductions is more than $.50 per mile. For
example, if you travel 10,000 miles for assignments in a calendar year, the deduction
is more than $5,000.
Silver or Gold certifications
for mystery shopping are income tax deductions. These certifications
help with your training as a mystery shopper and will help you get accepted for
more assignments in the long run. They're not necessary to become a
mystery shopper, but they're helpful.
Mystery shoppers will use the Schedule C of the Internal Revenue Service tax form to report your business profit (or loss). Part II of the form will breakdown all of your expenses from office items, car and truck expenses, commissions and fees, travel and meals, and other items.
You can write-off a portion of your home to reduce your taxable income. There is a simplified method on the Schedule C where you multiply $5 (dollar amount for 2019 tax year) by the square footage you use for your business (up to 300 square feet). You may be entitled to a larger deduction with a more complicated method on tax form 8829.
A cell phone that is used only for your business is another deduction.
If you have items that you’re
not sure what to categorize them as, they would go in the miscellaneous line. One
word of caution. Make sure you don’t
have too many items on this line. Suzette
Plumb-Trevino, a tax expert who has done my taxes for many years, explained to
me that too many miscellaneous items are an eye-opener for the IRS.
There was an easy form of the
schedule C, but that was discontinued in 2019.
Mystery shoppers who do restaurant assignments usually pay for their meals and receive reimbursements for their report. Many times, they pay more than what the reimbursement was set at.
Reimbursements are not considered as income tax deductions. Usually, the only item that is tax deductible for these assignments are the mileage driven and a shopper fee.
If you have a restaurant
assignment at a steak house that will reimburse you $30 and pay an additional
$10 shopper fee, you would be able to write-off the $10 shopper fee, but not
the $30 reimbursement. That reimbursement usually includes tax and
If a mystery
shopping company reimburses you for multiple assignments and include a hotel
stay, again you would not be able to write anything that is reimbursed.
Sometimes, veteran mystery
shoppers are offered to fly to a location by a mystery shopping company to do
assignments. If the company is paying you back for anything you spend,
this is not a tax write-off.
Remember, the miles you drive
to any assignment are tax deductible. The only exception is if
you agree to a packaged deal where the mystery shopping company will reimburse
you for mileage. Then, you will not be
able to use that as an income tax
Make sure to keep plenty of records when you complete your assignments. I always take a piece of paper and record the mileage when I leave for an assignment and the mileage when I return. I staple any receipts I received to that paper and keep it in a large envelope. It comes in handy during the tax season.
There are so many variables to consider for income tax deductions that I suggest you talk to a professional tax expert before you file your taxes. This is especially important for the first year of your mystery shopping business. There are changes every year to the tax laws that may or may not affect your business. A tax expert will know what you can and can’t write-off.
We are always looking for new mystery shoppers and new faces visiting different places. If you have the time and want to make some extra money on the side, my book (and eBook) Take That Job And Mystery Shop It! tells you everything you need to know to start a mystery shopping business.