Discover Card Cashback Bonus

[tb]

Every time that I use my Discover credit card they give me a small
bonus which is called "Cashback Bonus". So far, I have accrued over
$50.00 and I can use this balance as a credit towards the balance due
of my next statement.

Am I supposed to pay taxes on this Cashback Bonus?
--
tb

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[JoeTaxpayer]

On 5/9/13 10:48 AM, tb wrote:
> Every time that I use my Discover credit card they give me a small
> bonus which is called "Cashback Bonus". So far, I have accrued over
> $50.00 and I can use this balance as a credit towards the balance due
> of my next statement.
>
> Am I supposed to pay taxes on this Cashback Bonus?

No.
Currently, the rule is this is treated as a rebate, in effect, you are
getting back your own money.

This is distinct from a sign-up bonus, the metaphorical toaster you get
just for signing up, which is taxable.

On a lighter note, last year a credit card offered me 10% back on
certain purchases. I was warned by those who felt such a large bonus
might produce a 1099, and I was prepared to not be surprised. Even
though the bonus exceeded $5000, the bank didn't issue a 1099.
Confirming my belief that rebates tied to purchases are considered
refunds, not taxable.

[Seth]

In article <kmgerc$ljk$1...@dont-email.me>,

JoeTaxpayer <JoeTa...@comcast.net> wrote:

>Currently, the rule is this is treated as a rebate, in effect, you are
>getting back your own money.

More to the point, I think, is that it's treated as a discount on the
purchase (so if the expense is deductible, then it _is_ taxable).

>On a lighter note, last year a credit card offered me 10% back on
>certain purchases. I was warned by those who felt such a large bonus
>might produce a 1099, and I was prepared to not be surprised. Even
>though the bonus exceeded $5000, the bank didn't issue a 1099.
>Confirming my belief that rebates tied to purchases are considered
>refunds, not taxable.

The interesting issue is when the expense is partially taxable (e.g. a
5% rebate on restaurant meals, when the meal is 50% deductible as a
business expense). Is the rebate/discount on the deductible half, the
non-deductible half, or ratable? (I'd suggest the latter.)

Seth

[Stuart Bronstein]

se...@panix.com (Seth) wrote

> JoeTaxpayer <JoeTa...@comcast.net> wrote:
>
>>Currently, the rule is this is treated as a rebate, in effect,
>>you are getting back your own money.
>
> More to the point, I think, is that it's treated as a discount
> on the purchase (so if the expense is deductible, then it _is_
> taxable).

No, it's taxable if it has been deducted, not merely deductible.

--
Stu
http://DownToEarthLawyer.com

[removep...@yahoo.com]

On Thursday, May 9, 2013 7:48:02 AM UTC-7, tb wrote:

> Every time that I use my Discover credit card they give me a small
> bonus which is called "Cashback Bonus". So far, I have accrued over
> $50.00 and I can use this balance as a credit towards the balance due
> of my next statement.
>
> Am I supposed to pay taxes on this Cashback Bonus?

Only if you use the card for business (in which case you deducted your business expenses, so when you receive a portion of the money back you must report it as income, ie. instead of saying you paid $99 for something, you deduct $100 and report $1 as other business income). For personal use, you don't report anything.

[bill...@weacca.com]

On Friday, May 10, 2013 1:59:31 PM UTC-7, removep...@yahoo.com wrote:
> On Thursday, May 9, 2013 7:48:02 AM UTC-7, tb wrote:
>
> Only if you use the card for business

Do you really mean this? What if you used the card to make a personal charitable donation, or buy lottery tickets?

[bill...@weacca.com]

On Thursday, May 9, 2013 8:38:10 PM UTC-7, Seth wrote:
> In article <kmgerc$ljk$1...@dont-email.me>,

>
> The interesting issue is when the expense is partially taxable (e.g. a
> 5% rebate on restaurant meals, when the meal is 50% deductible as a
> business expense). Is the rebate/discount on the deductible half, the
> non-deductible half, or ratable? (I'd suggest the latter.)
>

Or when the purchase is a capital investment, or when the expense can be taken as a credit...

To make things even more complicated, my experience is that the cards reward different purchases differently [often quite opaquely], and (I think) depending on whether you are carrying a balance or not, and depending on your total purchases in a period.

Suppose that the period is a calendar year. Your cashback is 1% on your first $10000 of purchases, 1.25% on the next $90000, and 1.5% beyond that. Is the bonus ratable, or do you have to identify specific purchases that received particular bonus levels? Of course, in the real world, the period might not align with the calendar.

If you use cash accounting you also have to deal with receiving the rebate in a year different from the one in which you incurred the expense.

The record keeping on this sounds like a nightmare. Does anyone have any practical suggestions to keep it manageable?

[Arthur Kamlet]

In article <78036bdb-7a1b-4e57...@googlegroups.com>,

william...@live.com <bill...@weacca.com> wrote:
>On Friday, May 10, 2013 1:59:31 PM UTC-7, removep...@yahoo.com wrote:
>> On Thursday, May 9, 2013 7:48:02 AM UTC-7, tb wrote:
>>
>> Only if you use the card for business
>
>Do you really mean this? What if you used the card to make a personal
>charitable donation, or buy lottery tickets?

Perhaps it should be worded as saying you can ignore the rebate so long
as it is less than the charges and none of those charges provided you
with a tax benefit.
--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

[JoeTaxpayer]

On 5/15/13 1:41 PM, Arthur Kamlet wrote:
> In article <78036bdb-7a1b-4e57...@googlegroups.com>,
> william...@live.com <bill...@weacca.com> wrote:
>> On Friday, May 10, 2013 1:59:31 PM UTC-7, removep...@yahoo.com wrote:
>>> On Thursday, May 9, 2013 7:48:02 AM UTC-7, tb wrote:
>>>
>>> Only if you use the card for business
>>
>> Do you really mean this? What if you used the card to make a personal
>> charitable donation, or buy lottery tickets?
>
>
> Perhaps it should be worded as saying you can ignore the rebate so long
> as it is less than the charges and none of those charges provided you
> with a tax benefit.

Does this come under a de minimus rule? I recall that the IRS stated
that, for now, one can keep their miles earned while flying on company
paid business. Would the IRS treat this the same, or actually expect
that when I charge a $1000 donation, I account for the $20 cash-back,
and only deduct $980 as a donation?

[Stuart Bronstein]

JoeTaxpayer <JoeTa...@comcast.net> wrote

> Arthur Kamlet wrote:

>> Perhaps it should be worded as saying you can ignore the rebate
>> so long as it is less than the charges and none of those
>> charges provided you with a tax benefit.
>
> Does this come under a de minimus rule? I recall that the IRS
> stated that, for now, one can keep their miles earned while
> flying on company paid business. Would the IRS treat this the
> same, or actually expect that when I charge a $1000 donation, I
> account for the $20 cash-back, and only deduct $980 as a
> donation?

Personally I don't think they are ignoring it under the de minimus
rule - some of the rebates (or points or whatever) are just too large
to ignore.

Rather I suspect it's because they expect a huge public backlash if
they start taxing such a widespread, non-cash benefit, and they don't
want to take the political heat.

--
Stu
http://DownToEarthLawyer.com

[remove ps]

william...@live.com wrote:

> On Friday, May 10, 2013 1:59:31 PM UTC-7, removep...@yahoo.com wrote:
> > On Thursday, May 9, 2013 7:48:02 AM UTC-7, tb wrote:
> >
> > Only if you use the card for business
>
> Do you really mean this? What if you used the card to make a
> personal charitable donation, or buy lottery tickets?

Yes, in this case, if you deducted your charitable contribution or
lottery tickets (as a gambling expense), then you should report the
cashback as income. However, this is so tedious to track that you need
not bother about it, and besides the recaptured income is likely to be
so small. As an aside, when I donate a lot I cut them a check so that
they don't have to pay the credit card fees; with fees as high as 5%
(though I think less) then a $100 donation means the charity really
only gets $95 or more.

[Seth]

In article <kn0mr0$k4u$1...@dont-email.me>,

JoeTaxpayer <JoeTa...@comcast.net> wrote:
>On 5/15/13 1:41 PM, Arthur Kamlet wrote:

>> Perhaps it should be worded as saying you can ignore the rebate so long
>> as it is less than the charges and none of those charges provided you
>> with a tax benefit.
>
>Does this come under a de minimus rule?

I don't think so.

> I recall that the IRS stated
>that, for now, one can keep their miles earned while flying on company
>paid business. Would the IRS treat this the same, or actually expect
>that when I charge a $1000 donation, I account for the $20 cash-back,
>and only deduct $980 as a donation?

That's right; you received a $20 benefit from making the donation
(albeit not from the recipient of the donation) so you reduce the
deduction by $20. That's why my donations are made on mileage cards,
not cash rebate cards.

Seth