I don’t know a more tax centric place to ask so I’m asking here
I do work for multiple secret shopping firms and am classified by them as an Independent Contractor. My payments are reported under an EIN I had to get. At the end of the year I should get a 1099 from them. My questions are
Will this count as personal or business income
If I go to an assignment the same day I do my normal job am I able to deduct the mileage between my job and the assignment and the assignment to the home subtracting the distance from my job to my home
3a) If I am required to make a purchase which I am then reimbursed for does the purchase become a business expense?
3b) If I am required to make a purchase which I am then reimbursed for does the reimbursement count as income?
Business - Schedule C. You’ll have to pay self-employment tax as well (for that job). If it turns out you get a W-2 with FICA withheld, then this is moot. But I’ll bet the former.
Talk to accountant. Generally you can only deduct travel from your “HQ” for that job, and to a client, etc. I think if they call you and you go straight to a store from your day job, that’s a no.
Is the reimbursement intended for the full value? I’d think you could either leave it off or put it on and deduct the full price as an expense, and the IRS would be none the wiser. But accountant!
I’m going to need to consult a tax professional then. I know I’m paid on a 1099 at the end of the year but I was hoping I would not have to pay employment taxes. That’s going to be a big chunk of a small amount of money
I’m paid a lump sum part of it is to reimburse me for any purchase made. Only one company breaks it down where we can review payments online.
Definitely consult a professional. Some of the answers to these questions depend on other facts and circumstances. For example, the answer to the first question:
if you are talking about a small amount of money from secret shopping and you rely on another source of income to live on, there is justification for reporting it as a hobby activity rather than a business. (Businesses are, by definition, engaged in regularly and for profit, rather than, say, occasionally and for fun.) There’s no simple “If income is under $x, then it’s a hobby” rule, though, and doing it this way is likely to generate a letter from the IRS that will need a properly phrased response.
The IRS has a good publication on mileage with a nice chart. Generally, your first and last trip of the day are not deductible, but trips between jobs are. If you claim a home office deduction, that becomes another place of work.
3a) Business expenses are “ordinary and necessary” to the income-producing activity. Those are legal terms as used there, so don’t look them up in a dictionary. The purchase is probably not deductible as a business expense.
3b) A reimbursement on a business expense is not income - only a reduction of the expense. Whether a reimbursement on a personal expense is income depends on the circumstances. There may be a valid position to argue that the reimbursement is a refund of the purchase price rather than income.
I recommend a preparer for anything involving Sch C. It seems straightforward, but many things can go wrong. Peace of mind is worth it.
Generally, hobby = you spend more than you make. The IRS expects businesses to go into the red some years, so IIRC a business has a profit 3 of the 5 last years. I think hobbies are: 1) can’t claim negative income, 2) on Schedule A, therefore you need to itemize and 3) subject to a reduction of 2% of your income. Might not work out and you sound more like a business, especially if 1099s are printed.
You’ll definitely be having other expenses to deduct besides mileage and reimbursement-related, though?
Thanks everyone. I’m trying to use Quicken to track my “earnings” from Secret Shopping. I am putting the payments towards my bills but was getting concerned that I need to be reporting self employment taxes on this even though I don’t consider it a job.
Most of the firms I work through use my social security number but two of them require a EIN
How did you end up in this line of work, incidentally? I’m still bitter because I got taken in by a secret shopper signup scam in college, to the tune of $250. But it still sounds like a pretty sweet job. It just seems like a legitimate path to it is hard to find.
No I’m employed full time so I don’t think there is an advantage to paying into Social Security. I treat it as a hobby but I’m not sure if the IRS sees it the same way.
Just guessing here on the reimbursements but if you get to keep the item, I would bet you can’t deduct its cost from your net income. In other words, if you pay 100 dollars for a widget, and you get paid 110 dollars, that whole 110 would be income (ignoring travel expenses entirely here).
If you turn the widget over to the service, then you’ve only got 10 bucks in income.
Here is a real world example. Let’s say I was thinking of ordering pizza for dinner, I find a pizza assignment and it says they will pay be $2.00 plus reimburse the price of the Pizza. The total I get back is 16.00. Can I ignore the reimbursement for the pizza?
I would also suggest going to a professional. Until that time, I would also suggest the forums over at volition dot com. They have a specific section just for ICs.
It’s a pain, but you may want to go to more than one professional. The first one I went to had no clue on deducting mileage; for example.