Written by Kay Altland
Ever wondered how to document for your mystery shopping taxes? Or maybe you wondered how to keep your biggest expense allowed on your taxes? What would you do if you won the lottery, as in the IRS lottery, and was audited? I am going to tell you my story on how this played out for me in 2015.
It was August 2015 and I went to the mail box as I got in from my main job. I was looking at the mail and saw the dreaded IRS stamp on the envelop and I knew from previous experience that this would not be good news. I opened the letter and started reading. They wanted proof of how I was able to claim so many miles as business deductions for the year. They were specifically interested in my mystery shopping miles.
Although I was nervous, I knew that there shouldn’t be too much of an issue with this audit. Most of the mystery shopping platforms I worked for provide ample data for proof from their websites to show where I had been for the year. I then contacted my tax preparer.
Unfornately, HR Block had put my tax preparer on mandatory leave during the month of August. She was very nice and responded back immediately and told me when she would be back. I looked back at the IRS letter and it said that I had to contact my IRS agent listed on the letter within two weeks, which was long before my tax preparer would be back.
Since I had worked for several companies that year, I went ahead and printed out the shop information that is provided on the platforms with the company’s website information at the top of each sheet. That year I had completed over 1200 shops for around 30 companies, so there was a lot of printing to complete. After I printed my documentation and showed how I calculated my mileage and my beginning address I had to wait until the next day to call the IRS agent.
I called early in the morning and then again in the afternoon when I couldn’t get her. When she answered she was very polite on the phone and I explained the letter that I had gotten. I also explained that my tax preparer wouldn’t be available until after September to deal with this. She asked who my tax preparer was and told me that she knew her and that this call would count as I contacted them.
She said she would document it and when my tax preparer was back, we could call and make an appointment. She told that me she had some questions and wanted to look at her file for it first and put me on hold. She picked back up and said she was more confused about what the business was and how I racked up so many miles for it. I explained that I was a mystery shopper/auditor for a variety of companies and industries. I also explained that I began the shops at home, by accepting them on-line, and ended them at home, by filling out the reports. I explained that I had to go to the physical locations of the businesses though in order to get the information for the reports. She asked me what a mystery shopper does, and I explained the basics of what I do, and she said that she had always thought that was a scam. She said the mileage made sense, but she would need to add it for herself after my tax preparer got back. She then thanked me and told me that she would be talking to us again soon.
September came, and my tax preparer held a meeting with me determine what l I needed to bring. I brought every address from each mystery shopping company’s location, including e-mails where some couldn’t be back tracked, and gave them to her. She had me clarify what the purpose of the business was and how it operated. She also asked me to write down how I calculated the mileage. I explained to her what I explained to the IRS agent. I only take the mileage that Google maps gives me after I put in the route from the mystery shopping platform. This way there are no personal mileage in so included therefore it didn’t need to be accounted for. I explained that at home is where I picked up the shops as well as entered the reports. She organized all my documentation and set the meeting with the IRS agent.
The IRS agent had a few more questions which I answered through my preparer over the phone and then she said that she would add up the mileage for herself. She did not want a printed copy of the excel file showing earnings, dates, mileage, etc., just the information from the companies. It took her three weeks to go through it. When the IRS agent completed the mileage, she called me and told me that was the most extensive documentation anyone had ever given her for mileage and if I kept records like that, I shouldn’t worry about being bothered with it again. Two weeks later, I received a letter from the IRS stating that the deduction would be allowed.
All in all, it was a very time-consuming ordeal, but I wasn’t worried about it. Most mystery shopping companies use a platform like Sassie or others, where I can log on and pull out specific dates and print the locations with the dates and earnings. This is the best documentation to use, because each of the company’s websites is listed at the top of the printed sheets, so the IRS auditor can recheck and verify that the companies are legitimate if they want to.
I also wasn’t concerned because I never use personal mileage to calculate my mileage at the end of the year. I always take the company’s website information, using my home address as a starting point, and entering the mileage from there for the trip using Google maps. This gives the most accurate representation of where I went and doesn’t allow me to compute personal miles into the mileage. They are automatically taken out.
I don’t take other business taxes like Home Office, supplies, or other items (over spending on shops when necessary), because in the end I do a lot of shops that benefit me and so the items I get are items I am going to personally use. On the other hand, if I wasn’t doing the shop, I probably wouldn’t go to these places and and make a report, so that is why I take the mileage.
I hope this helps put someone else at ease and gives them ideas on what to use if they are stuck in a mystery shopping IRS audit or any other type of IRS audit.
Editor’s note: Don’t take any of this as professional tax advice!