Posted By Jacob Jans, Editor

10 Things To Do Now To Make Tax Time Easier On You

Written by Dspeakes

It will be here before you know it. You’ll start getting those envelopes in the mail with “Important Tax Document Enclosed” printed on the outside. There will be ads for Turbo Tax on TV. There will be H&R Block, Jackson Hewitt, and Liberty Tax shops and audits on the shop boards. And you’ll be thinking about that refund you hope you’ll get.

Get ready now. A little attention to details now will help that refund be bigger or your tax bill be smaller.

  1. Do you know what your starting mileage was on your vehicle you use for your mystery shopping (MS) business? Start now to find a repair receipt near the first of the year that showed your odometer reading. Write down that reading and the date. You’ll need it to estimate your total miles for the year so you can compute your business miles percentage.
  2. Have you been tracking your MS miles all along? If you haven’t, sit down now and start re-creating those trips using your trip planner or Mapquest. The IRS wants to see date, destination, miles, and business purpose of the trip. You can do this by the shop or by the route.
  3. Have you been tracking your income all along? If not, sit down with your Paypal printout and your bank statement. Every direct deposit should be on your bank statement. Hopefully every check you received was also deposited in a way you can identify it. If not, you will need to go online and “click through” to the deposit to hopefully see the checks you deposited. Here’s a hint: If you are depositing MS checks, do not deposit them with other checks in the same deposit unless you have posted them somewhere (spreadsheet, Quicken or Quickbooks file, handwritten list) so you know how much you got. Don’t rely on the MSC to tell you what you got.
  4. Have you been tracking your out of pocket purchases? Keep in mind, those reimbursements are on the same check as your taxable fees. You need to know how much you spent on purchases so you can subtract that from the total checks as a business expense. If you haven’t been doing this, you may need to re-create it from your shop documents (hopefully you still have the receipt or a copy of it) or from your MSC shop logs, some of which may show the breakdown between fee and reimbursement. If you don’t have the receipt, the IRS may tax you on the full fee you received if you are audited. The burden is on you to prove part of that check was a reimbursement. Most of our purchases are in cash. You won’t have a credit card statement to help you, and even if you do, it will not show what was bought. You also will need the shop instructions proving it was a required purchase if you are audited.
  5. Bonuses are part of the fee. Do not think you don’t need to report them just because you asked for $20 for “gas money.” As an independent contractor, your travel costs are your responsibility. If an MSC gives you a bonus “for travel” it is still part of your taxable fee; you need to deduct your mileage expense from it to make it not be taxed. So a 200 mile trip that made you $100 in fees, $50 in bonuses/”gas money” and you had $25 in reimbursable expenses will look like this on the tax return: Income $175, expenses $25, Mileage deduction (200×56 cents per mile) $112 = taxable income of $175-25-112=$38. But you have to report the components like that on the tax return. You can’t just put down $38.
  6. Purchases you made, that you would not have made if you weren’t mystery shopping, are deductible. This would be a laptop or tablet you bought for mystery shopping, a scanner, a printer, paper, toner or ink, a digital recorder, stopwatch, video rig, video shirt (modified for the camera), wig, body suit, or other disguise items — but not other clothing you bought to use for mystery shopping, but which could also be worn in your personal life. It’s not about what you use it for; it’s about what you could use it for. The IRS does not allow deductions for clothing unless it is safety equipment, a uniform, or clothing with a company logo on it that is part of a uniform requirement. Even a cowboy can’t deduct his jeans and hat.
  7. Phones are a special category. Even with a home office, you cannot deduct the base cost of the first phone line into a house. Period. You can deduct the long distance charges for business calls. Cell phones must be prorated between business and personal use, unless you have a cell phone you really and truly use only for mystery shopping (and that would mean that nobody has that number except mystery shopping companies and you never call your mother from it) you cannot make a 100% deduction. So make a reasonable estimate, or use your phone bill to determine a business percentage, and keep it below 75% (above that might be questioned). This is for both the cost of the phone and the cost of the service.If your cell phone is bundled with your TV and internet, you need to get a breakdown of how much you pay for each. Or find out what each would cost if you only had one service, add up the three prices, and figure what discount you got for bundling. Example: your total bill is $120. Maybe the cell phone alone would have been $45, TV would have been $50, and internet would have been $40. That would be $135 total. You saved $15 by bundling. You could deduct $5 from each service, making the cell phone portion $40 instead of $45 or you can do the math — subtract 11.1% from each bill, which also (coincidentally) makes the cell phone part $40, and you will apply your business percentage to that to arrive at your deduction.
  8. You do the same thing with your internet bill. You need to allocate between business and personal. If you spend two hours a night looking for jobs, and four hours once a week doing reports, that’s 18 hours a week. If your wife and two kids are spending four hours a night each on the internet, that’s 84 hours a week total. Total internet use is 102 hours. Your business percentage is 17.65 percent.
  9. Figure out these percentages now. Don’t wait until April 15 and try to figure out retroactively how much time you were on the computer. If you get audited and you had put down 75% business the IRS will ask how you arrived at that figure. If you keep a log for a week or two and can show them that log, they will accept your math. You really should do this about one week out of each quarter, just to be able to show that your usage doesn’t vary much over the year.
  10. Finally, discuss any questions you have with a tax preparer between October 15 and December 31. This is the only time of the year when there are no tax returns being done (except a few corporate returns for fiscal year, instead of calendar year, filers). They will have more time to discuss your situation and help you decide if there is anything you can do in those last two months of the year to help optimize your tax situation. For instance, if you’re going to have a lot of taxable income in 2014 (yay you!) and you were thinking of getting into video, buying and using the rig in 2014 will enable you to write off all or part of the cost against that income. But you can’t just order it on December 31. The standard for writing off depreciable items is based not on when you bought it, but when you placed it in service. It’s not “in service” if it’s on a UPS truck on its way to you. Be sure you receive it by December 31, where you will “place it in service” by hitting the record button to start learning to use it.

I hope these tips will help you prepare now for your taxes so you won’t miss out on deductions because you don’t have the time to do the math while your tax preparer is sitting there waiting for an answer. As a tax preparer for the last 18 years, I can’t tell you how many times I have asked someone about medical deductions, mileage, car loan interest, property taxes, or other deductions and had them say, “Oh, just forget about that, it would take me too long to figure it out.” Do the math now, and you won’t have to leave a possibly lucrative deduction on the table.

Editors Note: This is not professional tax advice, and might not apply to your unique circumstances. Please consult a tax professional.

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