Please not that I am not a tax professional, so please understand that this in not tax advice, and may not be accurate. I recommend consulting an accountant. Also, TurboTax is very helpful in walking you through filing your taxes.
Do I need to pay taxes on my mystery shopping earnings?
Yes — you are required to report all of the money that you receive as a mystery shopper to the IRS. This means that you report all of your fees AND your reimbursements.
As a mystery shopper, you are considered an ‘independent contractor.’ Which basically means you are running your own business, and the mystery shopping companies are your clients.
That means you will do your taxes as though you were a ’sole proprietor’ of a business. Effectively, you will end up paying taxes on the total profit you earned during the year. This is actually very good news, because it means you are open to a whole new world of deductions that AREN’T otherwise available. (More about deductions)
This means that any money that was necessary to spend as part of completing your assignment, you will be able to deduct from your earnings. You will also be able to deduct your driving mileage, which is around Fifty Cents a mile. In essence your expenses as a mystery shopper are deductible.
Be sure to keep an accurate record. This is important when it becomes time to file, or in case you get audited.
Do I need to pay taxes if I earn less than $600 from a company?
Yes, you are required to report all of your income no matter how much you earned. There is a common myth that you don’t need to pay anything if you earn less than $600. That myth comes from the fact that once you are paid $600 or more from a company, they are required to report those payments to the IRS. They will also send you a copy of the report, in a form called 1099-misc. Save this form — you will need it for filing your taxes.
What is the ‘self-employment’ tax? and do I need to pay it?
Yes! As a mystery shopper, you are a self-employed independent contractor. That means you will need to pay something called the ‘self-employment tax.’ This tax covers your Medicare and Social security payments. It is a flat15.3% of your income. Most of which goes toward Social Security.
What are “estimated taxes” and do I need to pay them?
As a general rule, if you expect to owe $1,000 or MORE in taxes at the end of the year then you are required to pay estimated taxes. Most mystery shoppers should not expect to owe this much. But if you get serious about mystery shopping, then this could be very important. Late payments are charged a 7% interest rate.
Estimated taxes are payments that you send to the IRS every quarter (four months). This is how taxes are paid that aren’t automatically with-held by an employer. This is for both self-employment tax AND income tax. Turbotax has a great tool that will walk you through this. For more information, read page 17 of this IRS publication.
What can I deduct from my earnings?
There are a lot of things that you can deduct from your earnings. Basically, anything that you had to spend in order to complete a mystery shopping assignment. This includes required purchases, mileage on your car, parking fees, and equipment such as a fax machine or a Digital Voice Recorder. You might even be able to deduct a portion of your rent/mortgage/utitilites if you have a dedicated area in your home used exclusively as a ‘home office.’ Turbotax walks you through all of this.
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