How to deduct 2024 Meal Expenses for my side hustle?

Mystery shopping meal expenses can be a bit tricky for tax purposes! Generally, if you're required to purchase meals as part of your assignment, how you handle it depends on the reimbursement situation. For amounts that are fully reimbursed: These are considered "accountable plan" reimbursements and aren't included in your income or deductions. Basically, it's a wash - you don't report the reimbursement as income, and you don't deduct the expense. For amounts that aren't reimbursed (like when you exceed that $25 cap): These out-of-pocket expenses can be deducted as business expenses on your Schedule C. And yes, the 50% limitation on meal deductions would typically apply here - even though eating is part of your job requirement. For tracking, I'd recommend keeping a detailed log that separates the reimbursed portion from your out-of-pocket portion for each assignment. Note the date, location, assignment details, total cost, reimbursed amount, and non-reimbursed amount you're planning to deduct.

After struggling with similar mystery shopping tax questions last year, I found taxr.ai (https://taxr.ai) and it was incredibly helpful for sorting through my receipts and categorizing which meal expenses were partially reimbursed vs. fully reimbursed. The system actually analyzed my receipts and shopping assignments and helped me understand exactly what portion fell under the 50% meal deduction rule. I was confused about whether I needed to report reimbursements as income (turns out I didn't for the ones under an accountable plan), and their system walked me through separating everything correctly. Saved me hours of manually cross-referencing receipts with reimbursement statements.

Just wanted to follow up about taxr.ai that I mentioned earlier - I decided to give it a try after being skeptical, and I'm genuinely impressed. It found over $800 in additional deductions I would have missed related to my mystery shopping business! It automatically separated my meal expenses into the correct categories (fully deductible, 50% deductible, and non-deductible personal portions). It even flagged when some of my "required" purchases actually qualified for different treatment under tax rules. The documentation it created will be super helpful if I ever get audited too. For anyone doing mystery shopping with complicated reimbursement situations, it's definitely worth checking out. Way better than my messy spreadsheet system I was using before.

If you're dealing with a mystery shopping company that's slow with reimbursements, you might also want to know about Claimyr (https://claimyr.com). I had issues last year when my shopping company misclassified some of my reimbursements on my 1099, and I needed to talk to someone at the IRS to sort it out. I spent DAYS trying to get through to the IRS without success. Then I found Claimyr and their system actually got me connected to an IRS agent in about 15 minutes instead of waiting on hold for hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c It was super helpful for clarifying how to properly report mystery shopping income and reimbursements on my Schedule C. The agent explained exactly how to differentiate between taxable income and non-taxable reimbursements.

OK I need to eat my words about Claimyr. After my skeptical comment, I decided to try it since I've been trying to reach the IRS about my 1099-NEC from my mystery shopping company where they incorrectly included reimbursements as income. The service actually worked exactly as described. I submitted my request through their website, went about my day, and got a call back about 25 minutes later with an actual IRS representative on the line! No hours of waiting on hold or getting disconnected after waiting forever. The agent was able to help me understand exactly how to handle the misreported reimbursements and what documentation I needed to keep. For anyone dealing with mystery shopping tax questions that need IRS clarification, this seriously saved me hours of frustration. Worth every penny not to deal with the hold music for half a day.

One thing nobody's mentioned yet is that you need to be super careful about how the mystery shopping company reports your income on tax forms. Some companies will send you a 1099-MISC or 1099-NEC that includes BOTH your actual income (fees for completing shops) AND your reimbursements all lumped together. This can really mess up your taxes because reimbursements under an accountable plan shouldn't be taxable income. If they report it all as income, you'll be paying taxes on money that was just passing through (reimbursements). If your 1099 includes reimbursements, you'll need to report the full 1099 amount on your Schedule C, but then deduct the reimbursed expenses to get to your actual taxable income.

Just to add one more wrinkle to this discussion - if you're doing mystery shopping involving alcoholic beverages, there are some additional considerations. The IRS sometimes scrutinizes alcohol expenses more closely, even when they're legitimate business expenses for mystery shoppers evaluating bar service. Make sure your assignment details explicitly state that ordering alcoholic beverages was required as part of your evaluation. This documentation is crucial for supporting the business purpose if you're ever questioned. Also, if your mystery shopping involves evaluating delivery services (like GrubHub/DoorDash mystery shops), make sure you're tracking delivery fees and tips separately from the actual meal cost.