The Mystery Shopper’s Manual

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This year, it is a good idea to get your taxes filed by April 15th and not file for an extension. The IRS will start mailing the stimulus payments (as much as $600 per taxpayer) in May, but you will not get your payment until after filing your 2007 tax return.

Do not rush through your tax return, though. Make sure you claim every legitimate deduction so you do not overpay your taxes. As an independent contractor, you can deduct the reasonable and necessary costs of doing business when calculating your mystery shopping profits. These deductions are taken on the Schedule C you file with your 1040.

Remember that if you do not use something exclusively for business, you may only deduct the business portion. For example, if you use your computer 40% for business and 60% for personal and family purposes, you may deduct 40% of the expenses related to the computer.

Here are some of the deductions you may be able to take, and what to do if you missed any deductions on a return you have already filed (even in a past year):

Mileage or car expenses - You can deduct the miles you drove for business using the standard mileage deduction (for 2007, $.485 per mile). Or, you can total all of the expenses of operating your vehicle (depreciation, gas, repairs, insurance, licensing, maintenance, garage rent, et al) and take a deduction based on the percentage the vehicle was used for business. If 60% of your miles were for business, you could deduct 60% of the total expense. This may give you a larger deduction, but there are lots of records to keep.

Computer and Internet expenses - These may include the cost of equipment, such as the computer, printer and scanner, as well as Internet access and supplies, such as toner. Some computer and software purchases may have to amortized over multiple years, unless you qualify for a Section 179 deduction.

Office supplies - Paper, envelopes, file folders, pens, and other office supplies may be deducted.

Educational expenses - Did you take a class to improve your writing skills? Get MSPA certified? Be sure to deduct your costs.

Books and publications - Did you buy a dictionary, thesaurus or grammar guide? Or a copy of The Mystery Shopper’s Manual?

Telephone - You can not deduct the cost of the first phone line going in to your home. However, you may deduct a second phone line used for business, or long distance charges on any line. Do you use your cell phone in your business? You may deduct a portion of the cost based on business use.

Advertising - This is a good place to deduct the cost of business cards.

Business use of your home - If you have an area of your home that is used exclusively for business, you may be able to deduct a portion of your rent or mortgage payment, utilities, taxes and more. Note that it must be used exclusively for business. This can be a little tricky, especially if you own your home, so run it by your tax preparer to see if this is a good idea.

There are lots of other possible deductions, including many of the purchases you make while mystery shopping. Having a good tax preparer can make things easier, although you may have to educate him or her about mystery shopping.

So what should you do if you already filed and missed some deductions? You can file an amended tax return, a Form1040-X, to revise your return. A Form 1040X must be filed within 3 years after the date you filed the original return or within 2 years after the date you paid the tax, whichever is later. A return filed early is considered filed on the due date..

For information on any of these issues, go to the IRS web site at http://www.irs.gov/