How do I declare survey income?

[nathstaxes]

I already asked this but I failed to be clear, so I'm trying again.

I have accrued reward points from MyPoints.com both for purchases (not counted as income by IRS)

and surveys (which IS counted as income). 

Here is the full break down:

2019:
Points earned from PURCHASES: 46160 (Cash value if I had redeemed = $290.68)
Points earned from SURVEYS: 6251 (Cash value if I had redeemed = $39.36)
Points REDEEMED: 0

2020:
Points earned from PURCHASES: 15216 (Cash value if redeemed = $95.82)
Points earned from SURVEYS: 12705 (Cash value if redeemed = $80.01)
Points REDEEMED: 15880 ($100 PAYOUT to Paypal)

2021: 
Points earned from PURCHASES: 0
Points earned from SURVEYS: 2186 (Cash value if redeemed = $13.77)
Points REDEEMED: 31760 ($200 PAYOUT to Paypal)

So, as you can see, I earned a lot of points that weren't redeemed until the next year or two

years later (plus I still have a lot of points that I still haven't redeemed yet). How on earth do I declare the portion of these payouts that were from surveys on my taxes?

Since in 2019 and 2020 combined I earned enough points just from purchases to cover the payouts so far ($300 total payouts, $375 total points value of purchase points accrued), can I just not declare this income at all for 2021? Then, in 2022 when I request more payouts that are essentially finally getting to the survey portion of my points balance, I will declare those payouts as income on my 2022 return?

As I understand it, even the taxable rewards points from my survey work isn't considered income in the year where I accrue it, but in the year where I RECEIVE PAYMENT (a payout) for it. If that's right, the problem is coming up with how to report the income just from the surveys. Hold it off until the end of the pile of accrued points? Or, try to figure the percentage of survey points vs purchase points? But if percentage, that percentage will change each year, but I don't get payouts until year(s) later!

Please help!!! 🙂

Thank you so much.

By the way, I have freelance writing income as well and I plan to declare any (if any this year) survey income on a separate schedule C as business income. So, I'll be over the $400 of self-employment income from any sources that doesn't require a tax return on its own.

[DianeW777 · Accepted solution]

Whether or not the points or surveys are redeemed is not the key. The real question is when did you have complete access to redeem the points  Once you had no restriction to the points they were income whether or not they were redeemed for cash. An exception would only apply if there was a restriction until a certain day. You must report income in 2021 for amounts you had an unrestricted right to in 2021.

You are correct to set up the freelance writing as a second and separate Schedule C.

You would report this as self employment income unless you can define it has a hobby. Hobby income does not have the ability to deduct hobby expenses under the Tax Cuts and Jobs Act (TCJA) for the years 2018-2025.

Any income received for services or goods is taxable.  You have to decide if it's a hobby or a business for tax purposes. Review this page from IRS:

• Business or Hobby?

Key elements:

1. A hobby requires you to report the income you received and under the current tax law, Tax Cuts and Jobs Act (TCJA), no expenses are allowed to be used to reduce the money collected even if you itemize deductions.
2. A business allows you to deduct the costs necessary to obtain the income.  The law explains that 'you must be engaged in the activity to produce a profit'.  The test under IRS is that you must show a profit three out of every five consecutive year. 

It's important to understand a couple of things.  One, the expenses that can be deducted start from the time it you started this business.  Any expenses to research, analyze and legally begin the business are called 'start up expenses'.  You have a choice on how you want to handle those. Likewise you can take advantage of the de minimis safe harbor for small business if you purchased any equipment to use in your real estate business.

1. Start up costs - if you had any expenses before you actually opened for business services such as legal fees, market study or organization fees
   • The IRS allows you to deduct $5,000 in business startup costs and $5,000 in organizational costs, but only if your total startup costs are $50,000 or less.
2. Any equipment that was placed in service and has more than a one year estimated life such as a lawn mower must be listed individually with the date of purchase and the cost including any sales tax paid.  The will be listed under assets and each asset must be entered by itself in this section.
   • If you have assets that cost less than $2,500, it's just easier and faster to enter their total cost under the miscellaneous costs. This is a special rule. The de minimis safe harbor is simply an administrative convenience that generally allows you to elect to deduct small-dollar expenditures for the acquisition or production of property that otherwise must be capitalized under the general rules.

All of this information is entered on Schedule C which requires TurboTax Online Self-employed or TurboTax CD/Download Home & Business.

• Where do I enter Schedule C

Please update if you have more questions and one of our tax experts will help you.

[DianeW777]

Whether or not the points or surveys are redeemed is not the key. The real question is when did you have complete access to redeem the points  Once you had no restriction to the points they were income whether or not they were redeemed for cash. An exception would only apply if there was a restriction until a certain day. You must report income in 2021 for amounts you had an unrestricted right to in 2021.

You are correct to set up the freelance writing as a second and separate Schedule C.

You would report this as self employment income unless you can define it has a hobby. Hobby income does not have the ability to deduct hobby expenses under the Tax Cuts and Jobs Act (TCJA) for the years 2018-2025.

Any income received for services or goods is taxable.  You have to decide if it's a hobby or a business for tax purposes. Review this page from IRS:

• Business or Hobby?

Key elements:

1. A hobby requires you to report the income you received and under the current tax law, Tax Cuts and Jobs Act (TCJA), no expenses are allowed to be used to reduce the money collected even if you itemize deductions.
2. A business allows you to deduct the costs necessary to obtain the income.  The law explains that 'you must be engaged in the activity to produce a profit'.  The test under IRS is that you must show a profit three out of every five consecutive year. 

It's important to understand a couple of things.  One, the expenses that can be deducted start from the time it you started this business.  Any expenses to research, analyze and legally begin the business are called 'start up expenses'.  You have a choice on how you want to handle those. Likewise you can take advantage of the de minimis safe harbor for small business if you purchased any equipment to use in your real estate business.

1. Start up costs - if you had any expenses before you actually opened for business services such as legal fees, market study or organization fees
   • The IRS allows you to deduct $5,000 in business startup costs and $5,000 in organizational costs, but only if your total startup costs are $50,000 or less.
2. Any equipment that was placed in service and has more than a one year estimated life such as a lawn mower must be listed individually with the date of purchase and the cost including any sales tax paid.  The will be listed under assets and each asset must be entered by itself in this section.
   • If you have assets that cost less than $2,500, it's just easier and faster to enter their total cost under the miscellaneous costs. This is a special rule. The de minimis safe harbor is simply an administrative convenience that generally allows you to elect to deduct small-dollar expenditures for the acquisition or production of property that otherwise must be capitalized under the general rules.

All of this information is entered on Schedule C which requires TurboTax Online Self-employed or TurboTax CD/Download Home & Business.

• Where do I enter Schedule C

Please update if you have more questions and one of 

[nathstaxes]

First of all, THANK YOU SO MUCH for your quick and very detailed reply! Fantastic.

Second of all, I was a little afraid of that, namely that the points count as income as soon as I receive

the points - doesn't matter when I redeem them.

Since, that's the case, it looks like I had $40 of paid survey income in 2019 and $80 in 2020 that I failed

to report on my taxes. However, I have decided to be safe and just report the FULL $200 in payouts I received in 2021 as income (even though most of that was from purchases which don't count as income, not surveys).

Summary:

2019:

$40 of survey income

I reported $0

2020:

$80 of survey income

I reported $0

2021:

$14 of survey income

I reported $200

Also, I reported it as business income, so I paid tax on it

So, my follow-up question is:

Since altogether I've made $134 from surveys and declared and paid tax on $200 (meaning I over-reported and over-paid, which is always allowed) - does it matter that I didn't report the exact right amounts every

year?

In other words, since the total paid survey income reported over the last three years is OVER what I made, does it matter that I missed reporting the right amounts in the right years? 

In other words, it's all come out in the wash and I've definitely paid tax on this income...is filing amended returns for 2019 and 2020 really required?

I don't know how to do that, since TurboTax won't allow me to do the automated "Amend a Return", since

I used the Free File product in 2019 and 2020. I would have to MANUALLY amend my returns by hand, and I don't know how to do that. I'm homebound and make very little money...is paying a tax professional to amend all these returns over tax that I've now paid REALLY necessary (especially considering we're talking about very small amounts of income here)?

THANK YOU so much for you help, I really appreciate it!

[DianeW777]

Question: Since altogether I've made $134 from surveys and declared and paid tax on $200 (meaning I over-reported

and over-paid, which is always allowed) - does it matter that I didn't report the exact right amounts every

year?

• No, if you over reported the income you would not necessarily have to amend for that reason and the paperwork may not be worth the effort.  You always have that option until three years after the due date of the tax return or two years after the tax was paid whichever is later.
  • You can add the correct amount to the taxable income (line on 1040) for each year to see if the tax table would be significantly different.  It may not change your tax liability at all.
  • IRS Prior Year Forms (simply type in 1040 - Form and Instructions will have the tax tables)