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So, first tax year with a few cash reward cards. Going to see the tax lady today and I was collecting various forms and got to thinking, is the money paid back to me as a "reward" taxable or is it treated as a rebate? I'm assuming the latter but could see a case for the former.
@jake619 wrote:So, first tax year with a few cash reward cards. Going to see the tax lady today and I was collecting various forms and got to thinking, is the money paid back to me as a "reward" taxable or is it treated as a rebate? I'm assuming the latter but could see a case for the former.
No, so long as the benefit is derived through a transaction.
This is the reason why sign up offers are "after first qualified purchase." If you deposited money into a checking account for a bonus, then the cash is taxable, since no "qualified transaction" occured.
So, even rewards in the 10s of thousands are all tax free, so long as they've been accrued by "qualified transactions!"
@jake619 wrote:So, first tax year with a few cash reward cards. Going to see the tax lady today and I was collecting various forms and got to thinking, is the money paid back to me as a "reward" taxable or is it treated as a rebate? I'm assuming the latter but could see a case for the former.
Almost always cash rewards from a purchase are not taxible. The IRS considers it as effectively a discount, not an income. The exception is when the CC was used to purchase something that was tax deductable such as a biz expense.
@cashnocredit wrote:
@jake619 wrote:So, first tax year with a few cash reward cards. Going to see the tax lady today and I was collecting various forms and got to thinking, is the money paid back to me as a "reward" taxable or is it treated as a rebate? I'm assuming the latter but could see a case for the former.
Almost always cash rewards from a purchase are not taxible. The IRS considers it as effectively a discount, not an income. The exception is when the CC was used to purchase something that was tax deductable such as a biz expense.
But non-cash "rewards points" derived from business deducted spending aren't taxable, right? My CPA and I differ on this.
@Open123 wrote:
@cashnocredit wrote:
@jake619 wrote:So, first tax year with a few cash reward cards. Going to see the tax lady today and I was collecting various forms and got to thinking, is the money paid back to me as a "reward" taxable or is it treated as a rebate? I'm assuming the latter but could see a case for the former.
Almost always cash rewards from a purchase are not taxible. The IRS considers it as effectively a discount, not an income. The exception is when the CC was used to purchase something that was tax deductable such as a biz expense.
But non-cash "rewards points" derived from business deducted spending aren't taxable, right? My CPA and I differ on this.
To the degree they have a cash value, for instance if they can be redeemed for full payment for a flight, they are taxable.
@cashnocredit wrote:
@Open123 wrote:
@cashnocredit wrote:
@jake619 wrote:So, first tax year with a few cash reward cards. Going to see the tax lady today and I was collecting various forms and got to thinking, is the money paid back to me as a "reward" taxable or is it treated as a rebate? I'm assuming the latter but could see a case for the former.
Almost always cash rewards from a purchase are not taxible. The IRS considers it as effectively a discount, not an income. The exception is when the CC was used to purchase something that was tax deductable such as a biz expense.
But non-cash "rewards points" derived from business deducted spending aren't taxable, right? My CPA and I differ on this.
To the degree they have a cash value, for instance if they can be redeemed for full payment for a flight, they are taxable.
*sorry for the off topic question*
That's my CPA's view too. However, if my firm (LLC, in which I'm a partner), gifts me the rewards points to redeem a flight for personal travel. If this gift is below $13K, aren't we both exempt if we're under the gift tax exemption?
PS - LLC S-Corp, if that makes any difference.
@Open123 wrote:
@cashnocredit wrote:
@Open123 wrote:
@cashnocredit wrote:
@jake619 wrote:So, first tax year with a few cash reward cards. Going to see the tax lady today and I was collecting various forms and got to thinking, is the money paid back to me as a "reward" taxable or is it treated as a rebate? I'm assuming the latter but could see a case for the former.
Almost always cash rewards from a purchase are not taxible. The IRS considers it as effectively a discount, not an income. The exception is when the CC was used to purchase something that was tax deductable such as a biz expense.
But non-cash "rewards points" derived from business deducted spending aren't taxable, right? My CPA and I differ on this.
To the degree they have a cash value, for instance if they can be redeemed for full payment for a flight, they are taxable.
*sorry for the off topic question*
That's my CPA's view too. However, if my firm (LLC, in which I'm a partner), gifts me the rewards points to redeem a flight for personal travel. If this gift is below $13K, aren't we both exempt if we're under the gift tax exemption?
PS - LLC S-Corp, if that makes any difference.
No. "gifts" of any amount have to be to individuals without a pecuniary or work interest. Otherwise there would be lots of "gifts" happening to avoid employment taxes, and even regular income taxes. I once ran into this when I owned a biz and wished to give all the employees stock. We had to bonus all the employees with enough cash that they could pay taxes on both the bonus and stock value. It's best to think of a gift as something unrelated to any quid pro quo like a gift to a friend that you don't also employ.
Personal rewards are not taxable. Business rewards are technically not taxable BUT THEY ARE TAXABLE. In the business sense, they are viewed as a reduction in cost so when itemizing, your expenses should be listed as lower therefore it is actually taxable. This really applies to businesses charging expenses, not employees charging things such as travel and being reimbursed. This is the correct answer. I didn't read what everyone else wrote.
As for Open's question about rewards points...those are not factored into tax equation unless they have a predetermined value. I can recommend a tax law expert who blogs about thse things that you could ask your specific questions to. CPAs are not the best people to ask what is legal and what is not since they don't litigate with the IRS and often times don't know the outcome of their assumptions.