Tax Tips for Credit Card Rewards: What You Need to Know for 2024
Credit card rewards, frequent flyer miles, and hotel points are fantastic perks, but their tax implications can be confusing. Whether you’re a small business owner or an individual, understanding the latest IRS rules can help you maximize these benefits without triggering unwanted taxes. Here are the tax tips for credit card rewards that you need to know for 2024.
Are Credit Card Rewards Taxable?
Credit card rewards, including cashback, points, and miles, are generally treated as rebates by the IRS—not taxable income. The IRS considers these rewards a discount on your purchase, not money earned.
Example:
- You spend $5,000 on your credit card and receive $100 in cashback.
- This $100 reduces your taxable purchase amount to $4,900.
However, if you receive a sign-up bonus without making purchases (e.g., for opening an account), the IRS may consider it taxable income. If the bonus exceeds $600, expect a Form 1099-MISC from your credit card company.
Frequent Flyer Miles: Tax Rules for Personal Use
The IRS does not tax frequent flyer miles earned through business travel when used for personal trips. This tax-free status applies unless you exchange miles for cash or other taxable compensation.
Example:
- You use miles earned from business trips to book a personal vacation.
- The flight’s value is tax-free, provided it wasn’t reimbursed by your employer.
The same rules apply to hotel points used for personal stays
Business Rewards: Are They Tax-Free?
For business expenses, rewards such as cashback or points reduce the deductible cost of the items purchased.
Example:
- You buy office supplies worth $1,000 and earn $50 in cashback.
- Your deductible expense is $950.
For depreciable assets like vehicles, rewards lower the cost basis, affecting depreciation and Section 179 deductions.
Giving Rewards to Charity
Donating credit card rewards to a 501(c)(3) charity can benefit both you and the organization. Here’s how it works:
- The rewards are not taxable to you.
- You can claim the donation as a charitable deduction if you receive proper documentation from the charity.
For Contributions of $250 or More:
Ensure the charity provides a written acknowledgment, including:
- The charity’s name.
- The donation amount.
- Confirmation of whether any goods or services were provided in return.
Example:
You earn $500 in cashback and direct your credit card issuer to send it to a charity. With proper paperwork, you get a $500 deduction.
Special Cases: Employer and Corporate Rewards
If you earn rewards while using a personal credit card for business purchases reimbursed by your employer, the IRS may consider those rewards taxable. Similarly, employees using corporate cards may need to report cash-back rewards as income.
Key Takeaways for Taxpayers in 2024
- Credit card rewards like cashback and points are generally tax-free as rebates, reducing your purchase price.
- Frequent flyer miles and hotel points earned from business travel are tax-free when used for personal trips.
- Donating rewards to charity avoids taxes and qualifies as a charitable deduction.
- For business expenses, rewards adjust the deductible cost or depreciation of purchases.
Knowing these rules ensures you make the most of your rewards while staying tax-compliant. When in doubt, consult a tax professional for personalized guidance. Learn more about the taxability of Credit Card Cashbacks here and here.
For questions on implementing these tax strategies, feel free to reach out at (657) 413 0211.
To learn how to earn tax-free income with the Augusta Rule, we have this article with all the information you need.
