For many mystery shoppers, mystery shopping is their first attempt at being an independent contractor or otherwise a self-employed worker. For people used to working in a salary or hourly position and getting regular paychecks, this can be a big adjustment. One of the biggest difference between these two types of jobs has to do with taxes. With a salary or hourly job, your employer will withhold your taxes so you won’t owe much (if any) in taxes at the end of the year. When you are an independent contractor, nobody is withholding your taxes, but in most cases your providers are reporting your income to the IRS. So come tax day, you may find yourself with a big tax bill. This can be quite a surprise if you weren’t expecting. If you want to prevent this big tax nightmare from happening to you, there are a few things you can do right now.
Save Some Cash. Most people will end up paying the IRS between 10-20% of the income in the form of taxes. This might be more or less with you, and you can use various online calculators or else look at previous years tax returns to get an idea of what your tax return is or will be in the coming year. From this, you can get a fair idea about how much money you should be saving on your own. For instance, if you make $200 for a week of mystery shopping and you are in the 10% tax bracket, you should plan to save about $20 for that week. When the end of the year rolls around, you will find that if you have been diligent about saving this amount regularly, you will have the cash stashed away in a savings account to pay your tax bill.
Write Off Your Expenses. Self-employed people are permitted to write off various expenses, such as travel expenses, office supplies, and even expenses related to a home office. There are special rules here, so be sure to tax to your accountant if you aren’t familiar with these write-offs. However, when you take advantage of this benefit of being self-employed, you will find that these expenses will add up in a big way at the end of the year. In some cases, you may even be able to write off your entire income as a mystery shopper so all of that income is essentially tax-free! All you need to do is to keep track of your expenses to get this benefit.
Seek Tax Advice. If you don’t work with an accountant already, you should consider finding one. This is especially true if taxes just aren’t your thing, because entering the realm of self-employed status can change your taxes in a big way, and it helps to have a professional working for you who knows the ins and outs of taxes. Not only can they help to keep you out of trouble with the IRS by ensuring your pay the right amount in taxes, but they can also find write offs that you may have not even known you had.
Taxes are never fun, and the fact is that they only get more complicated when you are self-employed. Use these tax tips to keep yourself from having a bit nightmare at the end of the year!
disclaimer: This is not legal advice. Please consult a qualified accountant.