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 Reimbursement - Is It Income?
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.Nicole
Inactive

Burnsville, MN
USA
144 Posts

Posted - 01/23/2004 :  10:30:33 AM  Reply  Reply with Quote
I was thinking the same thing. I traveled a lot for MS and I went to the MSPA Gold Conference (3 hours away) and I my silver certification and everything else that is deducable. I think I will show a loss too! I was wondering if that could be right? I also agree with Dawn. There is so much gray area in the tax laws expecially in our industry I think we can argue any of it. If the audior does not believe it make them work as a MS for a month and see what happens to them. What they have to buy and how sick of pizza and hamburgers you get that you don't actually eat them!

Shopping Minnesota
Gold Certified lmfgsr
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.Dawn DE
Inactive

DE
USA
518 Posts

Posted - 01/23/2004 :  10:35:58 AM  Reply  Reply with Quote
OK, since it is tax season and I am living IRS regulations 24/7, I am thinking about this WAY too much. As soon as I walked away from my computer, I knew that there was a glitch in my reasoning, and someone would call me on it. I do see your point, KeninSac, about the plumber not getting a benefit from the supplies he purchased. What if, after he bought them, the dentist changed his mind? The plumber uses the supplies for his regular business, and writes them off on his Schedule C as an expense, offset by pay he receives from another customer who paid cash. They are, either way, an expense offset by some kind of income (bartered service or payment).

I thought of it this way, if I went to the back door of the restaurant and offered to wash dishes for a sandwich, I would look at it as barter. We don't barter for the meal, we pay as a regular customer would, then write the report and submit the receipt, then wait for what the MS company themselves refers to as reimbursement: not pay, not compensation for services rendered, but reimbursement. Also, under the definition of barter, both sides must claim the goods or service as income. Does the MS company put a price on my report and claim it? When I get a 1099 MISC from a MS company,reimbursement is reported apart from pay. Technically, since the MS company could deny us that reimbursement without the receipt, can stipulate the terms of the meal (day, time, ordering requirements), and we cannot withhold the report until we get reimbursed, I don't feel that it's a direct barter (meal for report). If I lost the receipt and didn't get reimbursed (even though I did the report) I would write it off as a business loss, so why can't I either treat it as straight reimbursement (appears no where on my schedule C) or as a business expense wholly offset by reimbursement (both go on the schedule C and cancel each other out)? Either way, like the plumber, you are out the money that you spent for a legitimate business purpose that was dictated by a client. If you feel that the reimbursement must appear somewhere on your return, I really think you should consider most/all of the money you spent on the meal as business expense, depending on the MS companies ordering requirements. Nicole, I would certainly keep a copy of the MS companies requirements on file as a backup for your expense claim. Do they require two adult diners? Must you order a specific entree or type of entree? What is the least expensive item in that category? Is a drink required? How about a dessert and appetizer? If you go the claim reimbursement as income and offset it by expenses method, I would use as the expense figure 100% of the minimum that I needed to order to satisfy the requirements and 50% of the excess as a business meal under the IRS guidelines in pub 463.

Dawn
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.KenInSac
Inactive

Sacramento, CA
USA
104 Posts

Posted - 01/23/2004 :  10:53:34 AM  Reply  Reply with Quote
Dawn, I now agree, this is definitely not a barter transaction from the IRS viewpoint. I imagine that the MS company shows payment of $X to us for our report. Whether they view that as expense reimbursement or a fee paid probably does not matter; the point is, money did exchange hands. We were "paid" for service rendered.

The question I keep coming back to is, is it actually possible that the tax code allows us to perform a service, get "paid" in the form of an expense reimbursement (only), and not have to pay tax on this? You say "yes", I say "I hope so, but I really doubt it".

I could carry the plumber analogy discussion further, but I think that isn't as helpful as a direct discussion is. I do wish that the MSPA would help out, but considering the large liability if they give incorrect advice, I doubt that they will.

Ken

Ken
MSPA Gold Certified Shopper
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CherylW
Valued Contributor

Riverview, FL
USA
197 Posts

Posted - 01/23/2004 :  5:16:21 PM  Reply  Reply with Quote
I am a tax preparer and have my own interpretations of the tax law, but I decided to call the IRS and see what they had to say. I was told that if the company paying you does not included reimbursements on a 1099 then you do not need to include it anywhere on your Sched C.
I was also told that if a reimbursement is included for a meal then you may expense it at the entertainment/meal rate of 50%.

I think I totally confused her when I asked about a reimbursement of a product from a store. She said that would not be an expense, but I'm not sure what her reasoning was. But if this is not included on a 1099, then it is not income according to her.

If anyone wants to call, the # is 800-829-1040. They are open til 10:00 on weekdays and 3:00 on Sat. Not sure about Sun.
I'm thinking that if I call back and speak to someone else, I might get a different answer. But I like this one and I have her name and id # documented in case of an audit so I'm going with this.

MSPA Gold Certified
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Deanna
Contributor

Hamilton, OH
USA
94 Posts

Posted - 01/23/2004 :  7:18:46 PM  Reply  Reply with Quote
This business is different than most in that there are expenses essential to conducting business that have a personal benefit. I have not found much research out there addressing that possibility, along with other questions that seem to be specific to MS. I had thought of the barter aspect, but it is not to my benefit to treat it as such, and I agree entirely with Dawn's reasoning as to why is does not fall under the barter rules.

Unless you go to a tax preparer that has other shoppers as clients, they may not have a ready answer for the odd questions, and indeed, unless you question them, it is likely they will not analyze your expenses to see if you are applying the rules correctly. (So I think the answers to Rebekah's questions are "not much," "yes," and "yes." )

Pub. 463 seems to say the same as the IRS rep told Cheryl: you can be reimbursed for a meal, and if you properly account to your client who reimburses you, nothing has to be included on the return. Generally meal expenses are only 50% deductible. If you document the expenses for your client (the MS company) who reimburses you for the meal, you are not subject to the 50% limitation.

If you pay for the meal and are not reimbursed, it is only 50% deductible. So taxwise, reimbursement is better than getting a fee and purchasing the meal yourself! This is why the IRS said if the reimbursement is included in your compensation on Form 1099 (with your fees), that you could only deduct 50% of it.

However, many of us won't get 1099's to know whether the company intended to include it as nonemployee compensation because we work for many companies, earning less than $600 from each. So it is still up to us to decide how to report it.


MSPA Gold Certified #ct8cxq
Shopping Hamilton, Fairfield, West Chester and the northern Cincinnati suburbs.
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VickiA
Star Contributor

Rapid City, SD
USA
845 Posts

Posted - 01/23/2004 :  9:22:48 PM  Reply  Reply with Quote
Okay, so I did a famous mailing shop. I paid for the box, the stuff to go inside, I mailed it off. I didn't get any profit from it, but was reimbursed the shipping fee. I can claim that reimbursement as an expense...Right??

Silver Shopper ID# 3akxzg Shopping Rapid City South Dakota and surrounding areas!
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Vonette
Star Contributor

Walla Walla, WA
USA
867 Posts

Posted - 01/23/2004 :  11:22:47 PM  Reply  Reply with Quote
I'm going to pay to have someone figure out my taxes, but I've been following this thread anyway. I was surprised no one brought up the 1099 earlier in the discussion. I remember a long ago thread on the old forum about a certain shopping company that would stop offering shops with fees to any shopper that was too close to that magic $600 number for the year. When the shopper would ask why they weren't getting as many shop offers, they were told it was because the company didn't want to have to send out a 1099. But the company would still allow the shopper in that situation to do reimbursement-only shops because these did not count toward the $600. That seems to indicate that reimbursements were not included by them on the 1099.

I would like to hear from shoppers who get a lot of 1099's. Do they include any of your reimbursements on them or only fees? I myself do not do enough shopping for any individual MS company to get a 1099. I only get them for merchandising.

One of the MS companies has invoices for each month on their website where they divide the payment for each shop into "Labor" and "Expenses". Anything we have to purchase that we are reimbursed for always goes into the expenses column. Also on their website, they have a FAQ section where they state that it isn't necessary to claim "expense reimbursement" as income for tax purposes. They go on to say that you must report all wage and bonus amounts.

What I find most frustrating are the shops that offer a straight fee with a purchase required, but the purchase has to come out of your fee. So suppose I spend the entire fee on the item I purchased, but I could have bought something cheaper. I guess that will be another problem for my tax preparer to figure out!
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VickiC
Star Contributor

Placentia, CA
USA
455 Posts

Posted - 01/25/2004 :  8:25:07 PM  Send VickiC an AOL message  Reply  Reply with Quote
I do a number of shops whree I am not reimbursed for the meal, rather I am sent a gift certificate ahead of time.

As for those who say a meal isn't a service, what about carpet cleanign and oil change shops?

When it comes right down to it I just don't buy that the IRS is going to think I did those shops out of boredom. They are going to assume I did those shops so I could get stuff. Suff=income in their mind

Shopping North Orange County, Gold Certified
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.KenInSac
Inactive

Sacramento, CA
USA
104 Posts

Posted - 01/26/2004 :  11:04:08 AM  Reply  Reply with Quote
I called the 800# that CherylW provided above, and got an answer that agrees with what we probably all want to hear. Even if you don't receive a 1099, you must (of course) report all income. Her suggestion was to treat all money received as income (e.g., "gross receipts"), and then deduct all expenses. I mentioned specific examples, and told her one particular concern I had was with those jobs in which the only form of compensation was expense reimbursement. Her position was that it didn't matter, there really is no other way to do it.

However, she offered (and I accepted) to take my name & number, and to do further research on the subject. She said it's possible that there has been a ruling or letter issued on this, and research will turn that up. She promised a callback within 3 days. I'll post what I learn, when that happens.

Ken

Ken
MSPA Gold Certified Shopper
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Marcy
Valued Contributor

Terre Haute, IN
USA
191 Posts

Posted - 01/27/2004 :  1:42:43 PM  Reply  Reply with Quote
Regarding expensing reimbursements, what category does it go in??? I have many dinner shops where I received no fee, but was fully/partially reimbursed. If the meal was $55 and I was reimbursed for $53. IF, I can deduct that meal expense, my question is WHAT is the expense category for the $53???? Do I list it under "other expenses"??

I"ll be interested in hearing what Ken finds out.

Marcy ~ mystery shopper in western Indiana.
MSPA Silver Shopper certified #ijjaaf
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CherylW
Valued Contributor

Riverview, FL
USA
197 Posts

Posted - 01/27/2004 :  7:06:26 PM  Reply  Reply with Quote
Meals and entertainment are expensed under the section that is labeled as such and they have a limit of 50%. So in your example you would include the $53 with your income. The meal section is broken down. You list the total expenses, which would be $55 for you. You then take 50% ($27.50, rounded up to $28) and put it in the next column. I don't remember the line number, but it is on the top right hand side of the expenses section.

MSPA Gold Certified
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RebekahTN
Valued Contributor

McMinnville, TN
USA
125 Posts

Posted - 01/27/2004 :  7:48:27 PM  Reply  Reply with Quote
I may be wrong as I haven't done my taxes yet or talked to a tax adviser but from what I have been reading (and I will bring it up with my accountant) But I don't THINK "our" meals would go under "meals and entertainment". I think it would go under reimbursement somehow, where ever the other reimbursements are going.
Yes they are meals.... but the meals are bought so that we can do the observations being asked of us. We are not buying them "just to eat".
Meals and entertainment come in when you take a client out to dinner to get him to make a business deal/good relations with you, or when you throw a Christmas party for your employees or something of that nature.
These meals that we buy are being invoiced back to the schedulers (us sending them a receipt) and they are reimbursing for them. This fell under a different category of reimbursement like postage on a post office shop would be. If we didn't invoice them (send them proof of receipt to be payed) THEN from what I understood you had to claim it under the meals and entertainment but I can't think of a situation were that would happen for us.

Rebekah Blake

Shopping and Merchandising in McMinnville, Manchester, Smithville, Tullahoma, Woodbury, Sparta, Cookeville and Murfreesboro Since April 2003.
MSPA Silver Certified # xxfuj7
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.Nicole
Inactive

Burnsville, MN
USA
144 Posts

Posted - 01/28/2004 :  05:37:36 AM  Reply  Reply with Quote
Rebekah is correct! We can expense our meal because it was an expense. Now it depends on how you do your taxes what you expense but because of our job it does not follow the 50% rule! The 50% rule is like this (I Believe) "You go the MSPA Gold Conference and everyone goes to lunch together and you have your receipt for lunch than that lunch can be expensed at 50%." Since there in not any "rules" for the mystery shopping taxes you can say you have a shop that is just reimbursment for $20 and the company that sends you the check says it is a reimbursment you can claim $20 then expense $20. It just depends on how conservative you want to be with your return!

OK Here is a question from me... If you have a shop the pays $20 reimbursment for a meal. Do you claim $20 and then expense $20 or do you just leave it off. I do not think you could leave it off but I am getting confused!

Please Keep Us Informed Ken!

Shopping Minnesota
Gold Certified lmfgsr
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CherylW
Valued Contributor

Riverview, FL
USA
197 Posts

Posted - 01/28/2004 :  06:19:30 AM  Reply  Reply with Quote
I called the IRS again because I was not really in agreement with the first response that I received. I truly believe that most of our reimbursements are income. If I go to a restaurant and receive no other compensation, then that was my payment for that job. I asked if there was a way to find out if someone with this occupation has been audited and what the outcome was. She wrote up my questions and is going to submit them to an auditor. I will hopefully get a call back in a few days. I also asked how much and what I can expense against this income. She agreed that this was income, but also agrees that it doesn't fall under the usual meal rules. And what about the hotel shop I did?? I called at 8:15 am and she said that I was already her second mystery shopper of the day. Since this occupation isn't exactly new I'm surprised these questions have not been documented somewhere before. I work with someone who represents taxpayers at audits. I think I'll ask her how she would defend me if I get audited in the future.

MSPA Gold Certified
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Marcy
Valued Contributor

Terre Haute, IN
USA
191 Posts

Posted - 01/28/2004 :  07:11:59 AM  Reply  Reply with Quote
I also just got off of the phone with the IRS, because the only thing from preventing me from getting my taxes done is my mystery shopping income.

I was told that the meal/entertainment expense of 50% does NOT apply in this case. That as Rebekkah explained, it should be fully reimbursed and not just 50%. It's a different category.

He told me, after a very long conversation, to list the reimbursements I get paid under "other expenses" and title it "Cost of items purchased". Then to put in quotes, explaining that I am a mystery shopper and some of my reported income is fully expensed due to requirements of the job parameters. That in some cases no fee is received, but expenses are fully reimbursed.

I will try and word it better than that, but that was the general idea.

Marcy ~ mystery shopper in western Indiana.
MSPA Silver Shopper certified #ijjaaf
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RebekahTN
Valued Contributor

McMinnville, TN
USA
125 Posts

Posted - 01/28/2004 :  07:35:54 AM  Reply  Reply with Quote
FINALLY an answer that makes sense and tells us EXACTLY were to put it on our return and what explanation to put. (one that actually makes sense too!!!)

quote:
I was told that if the company paying you does not included reimbursements on a 1099 then you do not need to include it anywhere on your Sched C.


I can live with this answer too, BUT our problem is we work with so many companies that most of us don't get 1099s. I would say, there are few companies that we would do 600.00 with in a year unless it was high end stuff. If they don't include the reimbursements (which appears to be their option) then it would be even more difficult to reach the $600.00.
From what I understand, the companies expense our pay on their returns and still do print up the 1099's. They just don't have to send them if we make less that $600.00. If they don't have them, showing where their money went they can't expense it.
So how are we to KNOW if they included reimbursements or not? I have noticed that MS company schedulers can't even answer these questions.
How I WISH someone would come on here that has filed in the past years and let us know how they did it. This is my first year shopping. I WILL remember next year about this time to come back and help others.

Rebekah Blake

Shopping and Merchandising in McMinnville, Manchester, Smithville, Tullahoma, Woodbury, Sparta, Cookeville and Murfreesboro Since April 2003.
MSPA Silver Certified # xxfuj7
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Marcy
Valued Contributor

Terre Haute, IN
USA
191 Posts

Posted - 01/28/2004 :  07:51:09 AM  Reply  Reply with Quote
Rebekah, glad I could help a little

I went thru my taxes from last year and here's what I found. I only received one 1099 and it did NOT include my reimbursed expenses. Only the fees I received. It was from Trendsource. I don't expect to receive any this year, as my income was more divided out between companies. So while I can only explain how one company handled it, I hope that might help a little.

Marcy ~ mystery shopper in western Indiana.
MSPA Silver Shopper certified #ijjaaf
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RebekahTN
Valued Contributor

McMinnville, TN
USA
125 Posts

Posted - 01/28/2004 :  07:55:17 AM  Reply  Reply with Quote
Marcy,
Did they say that only what the MS company "allowed" meaning their min. reimbursement amount was to be treated as reimbursement or what we ACTUALLY spent. OR would it be the "cheapest thing in the store that meets the requirements"?
And did you ask about the situations were you HAVE to buy something but are only offered a shop fee with the option of returning later if you want?

I think maybe we all need to call the number and maybe they will dig a little deeper for us and find us some definite answers and past instances of how it was done. (Like questioned audits) Looks like we are getting answers though now.

Rebekah Blake

Shopping and Merchandising in McMinnville, Manchester, Smithville, Tullahoma, Woodbury, Sparta, Cookeville and Murfreesboro Since April 2003.
MSPA Silver Certified # xxfuj7
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Marcy
Valued Contributor

Terre Haute, IN
USA
191 Posts

Posted - 01/28/2004 :  08:20:10 AM  Reply  Reply with Quote
Rebekah, when I explained about the $53 reimbursed dinner, he said I could only take a $53 deduction, even if it was $60 meal. I have done this shop several times and know that it is possible for us to stay within the reimbursement amount (although I've heard in other areas of the country they can't). Some times we do choose to get higher priced items (knowing it will exceed the $53) and we accept paying the extra out of our own pockets. So I was okay with that.

As for asking about a required purchase when there's only a shop fee and the reimbursement is built in to it, I did not. Last year I only listed it under the "fee" category, regardless of what I purchased. This year, I'm doing my records differently to show that I HAD to make a purchase, even though it's still only a fee. So I'll have to call and tackle that question for next year. I realize I may be shortchanging my deductions this year, but that's the risk I have to take since I didn't document it properly.

Marcy ~ mystery shopper in western Indiana.
MSPA Silver Shopper certified #ijjaaf
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Merrl
Star Contributor

CA
USA
535 Posts

Posted - 01/28/2004 :  12:02:08 PM  Reply  Reply with Quote
I'm glad to see all of the new input on this issue. I asked a friend last year, who is a CPA and 'enrolled agent', what he thought about this. Bear in mind that he did no research on MS in particular, but is an expert on Sch "C" preparation for small businesses. He advised declaring all reimbursement income and offsetting the reimbursements as expenses, whether you get a 1099 or not. If you are audited, the reimbursement checks deposited in your accounts will be there. Then the IRS will get upset that you are hiding possible income. It is much better to argue with the IRS about whether the expenses are allowed. He did have a problem with the concept of not paying taxes on a nice expensive dinner for two people. But then again, he is not familiar with the "reasonable and necessary expense" practices of the MS world. He commented that we are such small potatoes that the IRS has ignored us, hopefully now that the issue has been raised, the reply will be in our favor. I plan to claim all reimbursement amounts as expenses, including food, groceries & gas. I also am claiming the small purchases that are required as part of a shop as expenses. The worst that can happen is that I am audited and the expenses are disallowed. I guess no one out there has been audited on this so far? My returns were examined last year but no auditing was done on the MS portion. Oh, and I would NOT rely on any guidance posted by any MS company or MSPA. Their interests (for tax reasons) are not necessarily the same as ours.
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