As a mystery shopper, you have to remember that you are working just like everyone else. That means that you have to pay income, Medicare and Social Security taxes as well. However, things are different than if you were holding down a job with a salary or hourly wage. As an independent contractor, you must pay your taxes to the IRS directly, rather than your employer cut a portion of your earnings to pay for them. This is done every year through filing a Form 1099-MISC for Miscellaneous Income. Because they are a little more complex than a standard tax return, it's easy to run into some mistakes that you can avoid with due diligence.
Ignorance is not bliss
The most common mistake that people make with 1099s is ignoring them, according to Forbes. This may seem like a big deal, but the fact of the matter is that most people aren't used to the Form 1099, and treat it as an unimportant mailing item. However, anything that is reported on your 1099 is matched to your Social Security number. If your income from mystery shopping exceeds $400, then you will owe taxes. It doesn't matter if each company you work with pays less than that. Because the jobs are tied to your SSN, you don't have the excuse of being ignorant because you moved and it got sent to the old address. As a consequence, paying attention to where and when you worked with someone is of the utmost importance if you want to file accurate taxes and not get audited.
Another common error involves those who had money withheld from their checks or already paid the IRS in taxes over the course of the year in anticipation of the tax bill, a useful strategy that prevents a large tax bill at the start of the year. However, some may feel that if they paid enough, they can avoid footing a tax bill. Freelance Taxation says making that assumption is a big mistake. If you earned income, you must file a complete tax return, even if you paid exactly what you owed. In relation to that, you may think that if you forgot about filing your tax return but paid the right amount, you can just return to it at any time and still get a refund. That is also untrue: You have at most three years to file a return and get a refund.