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I didn't know that IRS made the wrong argument int that case. I get the feeling that it was done on purpose though. There seems to be no incentive for the IRS to win that case and potentially have to start regulating or taxing cash back programs because companies make a business mistake.
They can tax your credit card rewards, but won't bother to deduct the interest you were charged on that same card which probably exceeds those rewards. The irony...
hey Jaz°! {17602 (?) would U like to cover this video/topic: 'Do You Know The 11 Types of Income the IRS Doesn't Tax' [2024 Feb 25 {qv th-cam.com/video/3nOdI0UlEYo/w-d-xo.htmlsi=dTpDs5YU3GyQzUxr }
I dislike taxes for one main reason: the government requires individuals to calculate their own taxes and imposes heavy penalties for mistakes. While I have no problem paying taxes as a US citizen, it seems strange to me that I have to do the paperwork when the government already has all the necessary information.
I don't regret the financial mistakes I've made in the past, as they've all taught me valuable lessons. However, my biggest misstep was planning my finances without consulting a licensed financial advisor.
I sought the guidance of a financial counselor, and as I near retirement, their advice has proven invaluable. I was initially concerned that compound interest on index funds wouldn’t suffice since I started investing later. It's quite amusing to realize that I’ve outperformed colleagues with more investment experience, having gained over $386k tax-free.
This is definitely significant! Do you have any recommendations for professionals or advisors I could contact? I really need guidance on proper portfolio allocation.
Rebecca Lynne Buie is the coach who guides me. With years of experience in the financial markets, her strategies have worked well for me and contributed to my success. She offers clear entry and exit points for the securities I focus on
Thank you for the tip. I found your coach online and conducted my due diligence before scheduling a call. Based on her resume, she appears to be highly proficient.
That was perfect. No time-fillers, no beating around the bush, no nonsense. Straight to the point, concise, and covered all the important and relevant aspects to the topic. Great presentation. Thanks for the great content.
Was a little bit worried that I was about to find out my cashback rewards were supposed to have been taxable the whole time, thank goodness that's not the case! 😌
Not exactly a CC reward taxation example, but I had a similar taxation issue after opening a savings account. There was a $250 reward (cash credit to your account) if you maintained a certain avg balance over x months. Sure enough got my reward credit, but then during tax season got a 1099-INT that not only included my YTD interest earnings, but also the $250 reward tacked on as interest income. That was a bit of let down. lol.....I mean it does make sense, it was essentially bonus interest income rewarded beyond the stated rate, still annoying at the time lol.
I have taken advantage of offers like that a few times and it was always been clear up front that was the case, but my effective tax rate has always been rather miniscule.
That's EARNED INCOME so it needs to be accounted for on a return. Points back on a CC is not earned income, they are simply discounts and credits so you are spending less NOT making more.
Just noticed this all of a sudden with this video- you're clearly making a great effort to consistently use your hands and face to express your points and keep the video engaging. Honestly, it's really impressive once you start to notice it. Thank you for doing that since the topic is of course fundamentally a dry topic that is difficult to make engaging.
Jasmine, you make the best tax content on TH-cam. Please keep going, it is so helpful to me as a small business owner. Thanks for putting in the extra effort.
Jasmine, I love how thoughtful and well-researched all your videos are! Thanks for the insight - good to know cashback vs points and personal vs business. Please continue to make educational videos!
Income tax was paid on the initial money that was spent. Sales tax was paid on the total money that was spent. Getting anything back is only a small percentage being returned on money already taxed twice.
Former employer had a bunch of LLCs. Dealerships. Would make sure at the end of every day to inventory swap all their parts to max out their credit cards, and then buy the parts back. The cashback was greater than the transaction fee… shhh, don’t tell anyone, and especially not the fact they brought in a CFO that opened up accounts in the Caribbean and Europe. I’m sure it’s all above board.
The only time I know anything is taxable from my bank/credit card is when I get that 1099 form in February telling me how much interest/dividends/etc I get to enjoy paying taxes on.
Great presentation. I'm studying for my EA and have always had a geeky interest in reading the law and court opinions. My biggest takeaway from your video was the importance of research to understand the position of the IRS on matters, as well as how it might change.
Refreshing to see somebody who knows their stuff take time to talk to the public! A question: If the credit card is used by a private person to purchase a good or travel for business purposes, and they get reimbursed by the company employer; then they effectively made money on the cashback rewards. Is that then taxable? This is a very common situation for corporate employees who travel or purchase materials for construction, etc.
Hmm... I'm not a lawyer. But it seems to me that you are basically buying something and then turning around and effectively 'selling' it to your company at the same price. In general if you purchase something for personal use and sell it at a profit, that profit is actually taxable. So if you bought those tickets, and get a reduced cost (owing to cashback rebate), you MIGHT have to claim the sale to the company with profit. But if you buy it and just get 'reward points' to be used at some future point, then the IRS has already said, "yeah, it might be taxable but we're just not going to track it.... yet".
I am also not a lawyer but agree with Mike's assessment. I travel for work some so this could apply to me. I'll add that if the IRS ever wanted to start tracking that and collecting it would be a nightmare. I would personally get a separate credit card that does not have cash back rewards to use for business related purchases to avoid the hassle. Either go with no rewards or get an airline miles or hotel points card since the IRS has stated those won't be taxed.
So does the same apply to every single different type of lawyer (Criminal, corporate, medical, civil etc.)? All laws should be simplified because the average person can't interpret them?
Credit card rewards are a credit back on money you spent. A discount on the price, not income. Taxing them would be like taxing coupons. You saved $10, oh, your going to have to report that as income...
@wouldntyouliketoknow9891 Well I guess getting something on sale is a debt forgiven too. The MSRP is much higher. This is all a treading a thin line about the precise timing of when the money gets returned.
@sprockkets No, it comes from the customer in the price of the product. The company then pays from that money the 3%. So getting some of that money back, is getting your own money back. But it can be argued multiple ways if you ignore the entire transaction and because the money changes hands three times. Customer, company, Visa, customer. The government is probably looking at only Visa and the customer. Which then looks like Visa is paying them and counting as income, but that ignores the entire transaction. Awfully convenient for them to ignore things like that in their favor...
Thanks so much for going through the actual law. I will now keep a look out if the law decides to change. I feel people would be hesitant to use reward credit cards if taxes were involved.
It's not when used, its when earned. And I feel like people would switch to cards that earn straight cashback instead of miles. Majority of my cards are the former kind, and they are usually better, so no loss there.
How about, expenses paid with your credit card that your employer reimburses? You receive cash back on those credit card purchases you made on behalf of your employer?
awesome channel, found u on shorts. u have grown crazy fast; not hard to do when ur competition is a bunch of pump&dump crypto bros who struggle to articulate how a 1099 works or thought FTX was a solid investment, you are the voice of reason in the abyss of nonsense money/ finance youtube pit. Thank you
I always understood this: Anything bonus requiring you to spend money is a rebate ( cardholder reward). The thing that is taxable are rewards/bonuses for checking/deposit accounts, no spending requirements only savings.
A corollary question. What about state sales tax? In Texas the sales tax is paid on the net purchase at time of sales after discounts like store or manufacture’s coupons, but not mail in rebates. What are the rules for stores like Sam’s that give you a credit in your Sam’s account for a percentage of the purchase? The purchases comprise both sales tax and non-sales tax items.
If I don't receive a form 1099 or any forms from the bank, then I don't claim it. It's not my job to do the banks job. The IRS is form driven so no forms, no claims. My opinion.
What if I refer someone (without spending money) and receive points? From what I’ve seen online, those would be taxable because it is no longer a rebate.
Great question and I’m definitely interested in her response (hopefully)… but based on her comments this might falls into the category of not worth pursuing because it’s hard to place a definitive value on the points… 🤷🏽♂️🤷🏽♂️
Your presentation would have been more understandable if you had included a visual to show the process of the Visa gift card scenario rather than just reading the courts explanation.
Yes, but you could argue that the reward is only a return of a portion of the money you spent. Like a refund. The reward is an excess of the charge you paid that the company chooses to return to you. It is not like a lottery ticket where the reward is in excess of what you paid. The reward is a discount for being a loyal customer.
How does it work in an example of using Amazon points to buy items from Amazon? Is it treated like a reduction in cost to the points of getting the item for free? Also, on the note, are gift cards taxable, or are they also a reduction of cost and therefore not taxable?
Good question. I use use my reward points for an Amazon gift card. Never got a statement from the bank saying they are taxable like I do with earned interest.
Great stuff! From what I have been reading about FF miles, there's no net value to them anyway, so the IRS is doing the right thing by ignoring them for the time being.
Awesome video yet again… I appreciate the distinction you established between cash rebates/reward points and cash credits for opening new accounts, and why the latter is taxable 👍🏾👍🏾
This was an excellent analysis, but I think you're missing the bigger picture. Let's say the IRS argued what the judge said they should have argued in Anikeev and the IRS had won the case. In doing that the court would have fundamentally changed tax policy for every business in America that uses a credit card, who would also then be subject to the specifics of the Anikeev ruling. That's a lot of businesses that could be affected overnight! Then throw in the other complexities you bring up in valuing reward points and it's a mess. And let's make it even more fun: Let's consider rewards cards that earn 5x points at restaurants for business meals, which themselves are often limited to a 50% deduction. Want to recalculate that "income" to factor in the different earn rates and then exclude 50% of that particular earn rate on some expenses? That is the path to madness. That's what the IRS may have caused if they argued this case the right way and happened to create precedence in the process. I believe it's more plausible that once the IRS realized that could happen they intentionally chose not to make their best argument.
What about cash back rewards on purchases that are reimbursed? My company lets me use my personal card for purchases and they reimburse me weekly. So I end up with a 2-3% gain on every purchase. So far haven’t really found any info in this situation.
Interesting , I used to get 1099 Misc for "spiffs" from manufactures or their repping firms for selling their brand product over maybe some other brand products. Sometimes there would be a "contest" with various prizes , those too were 1099'd. If the value exceeded $600 for the year from any one brand or a combination of brands repped by one repping company you'd get a 1099.
Shhhheewwww! I have $3k saved up and this video made me NERVOUS! Wouldn’t surprise me if the IRS found a way in the future. Safe for now as mentioned…Great job once again!
It is crazy for any rules to exist, because it is not a gift or income. The merchants charge everyone more to pay the credit card companies transaction fees. When you get "rewards" they are just a partial REFUND of the credit card fees hidden in the price you paid.
I have always wondered why the irs has never taxed airline and hotel points - I travel for work and accumulate a ton of these points which can have significant value - shhhh!!
A bit confused here. If I buy a car let's say for 30k and get a 5k cash reward back. Do I pay sales tax on the full 30k purchase and get to keep 5k tax free, or am I paying the sales tax only on 25k in this case? And how do you explain all of that to DMV then that you got the car with a discount and got the difference back after the purchase. I bet the paperwork and the wording in it may be confusing to the brightest minds of the dmv. Most likely they still charge you the tax for the full 30k, how do you file for it during the tax return time?
So if a rebate is a reduction of the basis, does that mean that the inflation reduction act credits should be calculated on cost net of any utility rebates (not offered by the seller but included in the formal quote from the seller)?
You said the magic word about half way through. Rebate. I have 40+ rentals. And also own a restaurant. Combined gross income is over 2m for the year. I use 2 cards. A 2% cash back net 30 Capital One. And a Chase Reserve for particular types of purchases. Hold your breathe… $57,932 last year in cash rewards. This year will be over $64K. We use a card for every single aspect of our business except for payroll. If a vendor doesn’t take a card, we don’t do business. Period. It’s 2024 take a card. We go on 4 really nice vacations every year.
Good - your lose, I don't wish to use your credit card as payment - if you don't have cash - your not buying! Not getting into my pocket for your business ventures --- if you are buying in regular bulk, then you can arrange a fund transfer from your bank payment COD. If you need OPM - get a loan
I wonder if Mikey even picked up on the point of this video that all those cash rewards are taxable... I also wonder how much Mikey pays in credit card fees since many vendors will charge for using a credit card. I also wonder if Mikey even knows.
@@notpublic8961 People don't understand credit card is a game of chaining your future to death by enslavement... It's a tool to use for personal stuff and bills as long as you use it correctly... In business - it's not smart 🤓 - if you need a line of credit, open a bank account for that... Definitely don't mind debit cards - but cash is King 👑 -
@ lol. Funny guy. Only my grandpa calls me Mikey. And it’s called a rebate. As long as you spend something to get something it’s a rebate. Real simple.
Fellow LLM tax here Great job explaining the material! However, I think you'd get a different result if you were discussing referral bonuses that many CC issues pay to their users when they refer others to become card holders. These cannot be, IMHO, characterized as rebates on purchases, such as most sign-up bonuses are.
This has been reviewed by the IRS. Credit card rewards are viewed as rebates or discounts, not income, for personal purchases of goods and services because they do not affect personal tax deductions enough to be worth pursuing.
Still confused on personal credit card cash rewards. For example, banks like chase and even Apple Card give you a percentage of cash back for every qualified purchase. Don’t banks usually send you a 1099-MISC for those amounts? And if the cash back is less than $600 for the year, aren’t you still technically required to report that as other income (even though we know no one likely will do that)?
I missed. 1. If you take cash for CC rewards, is there a tax? 2. If CC cpmpany allows, I transfer the accumulated points to a relative, is there a tax, if so who gets taxed?
Excellent. I would have like to seen the scenario of a business purchase reimbursed by the employer. Since no deduction is taken by the employee, I gather these would be taxable. However, some employees may incur interest charges between purchase and employer reimbursement which I wonder if adjusts their basis?
I think I understood the video, but I have a question. Why doesn't the IRS treat points similarly to cash in that they effectively represent a lowering of the price of the item where you can use those "point savings" on other items from a limited list? Example: "I use my cash back on a plane ticket" versus "I used my points for a plane ticket". Both represent value from the card that effectively lowers the price of stuff I bought with the card by the plane ticket's cost. Both just let me get more stuff from the same amount of spending. Does it have to do with the value of rewards in comparison to cashback?
Hi I have a nuanced question wondering if you would have an answer. This relates to Supreme Court case commissioner versus Glenshaw glass “over which the tax payers have complete dominion” my question is in regards to that as I’m a profesional gambler and sometimes use offshore sportsbooks which have high rollover (amount to wager before being able to withdraw) if I made $20,000 on this offshore sportsbook but still couldn’t withdraw as I didn’t yet hit the rollover requirement in the year that I made that money do I not have to declare that as income until I reach the rollover requirement? IE I could push the taxes back a year if I wait to hit the rollover at the beginning of the new year. Would love an answer.
I was under the impression they weren’t taxable because it wasn’t a net gain on income. Spending $100 to get $2 back didn’t get you $102 overall, but just a discount essentially. The same rationale applied to sign up bonus worth $1000, because you had to spend money to get money it was still treated like a discount
That was my thought, the rewards are a rebate, it's an enticement to continue to conduct business with a vendor, they do points or cash back so they can hold the money. It is a different animal when you earn points/miles for a business expense and then redeem said points/miles for non-business expense. But I totally understand the logistics of trying to value miles or points as they generally do not have a cash value and can be redeemed at various values so there is no point in the IRS trying to tax these.
Suggestion for Future Video: 1099 vs W2 for S-Corp's Reasonable Compensation A Virginia LLC treated as an S-corp is owned by a Wyoming single-member LLC. Rather than the S-corp paying W2 wages, the Reasonable Compensation could be paid to the WY LLC as 1099 management fees. "The IRS will reclassify all 1099-MISC payments made to S Corp owners as W-2 wages." However, in this scenario, the owner will be an LLC (with a management agreement with the S Corporation). Because the LLC owner is not an individual, it cannot be an employee, and cannot be issued a Form W-2, so under the IRS's own rules, it seems that the S Corporation would have to pay the LLC owner reasonable compensation as Form 1099 management fees.
Gosh. I really like the word rebate. Not cash back. Because if you had to spend something to get something by definition that’s a rebate right? Like purchasing a new car. I received a $2000.00 rebate on a 40k new car, I’m not aware of having to pay tax on that rebate. Hey speaking of rebates, my mom in the 1970’s would mail in every rebate on everything she purchased! She’s 72, I’ll tell her she’s getting audited.
Jasmine I’d be honored to help you with comment moderation. There’s tons of fake conversations under other comments directing people to get financial advice from influencers, if you’d like to knight me as a moderator I’d happily slay the spam dragons for you as aggressively or not aggressively as you like…but those recruiters in particular have to go
I'm a little confused on the ending, so does that mean if you take a business cash back reward and transfer it for personal use does that still seemingly comply? Or is it only if the reward is generated with personal money? It seems like if you use the reward for personal items it wouldn't trigger that because you're not doing the double dipping or am I missing something?
I think I may have missed it. Was there a clear determination where gift cards sit in your summary at the end? As frequent flyer miles or as cash? I can see rhe argument for either related to business.
So does this mean there's now a legal argument that if I purchase with a cash back credit card, "reducing the purchase price" I should pay less sales tax?
If they start taxing cash back people will try saying "Well I spent $100 to earn that $1 in cash back, so that $100 is an expense that I'm now going to deduct." Obviously that won't work, but people will try it.
With the apple card you have and option for cash back to to be transferred into a high yeald saving account. Is the cash back transferred to that account taxable?
Question - regarding the Chevron being overturned... does this open the door for challenges on IRS Guidance and Treasury Regulations if it's not clearly outlined in the statute and has limited relevant case law? With the rewards that can't be redeemed for - that seems like an agreement between the customer and the business that isn't really linked to a dollar money amount. Just because the airline says you have X dollars worth of miles... the end result is them giving you a discount, so I don't see how getting a discount for a purchase should be taxable. With rewards that can be redeemed for cash or that have a cash value that can be used anywhere, I could definitely see how that could be considered taxable. Even the precedent/guidance presented in this case goes against cash back because if VISA gives me cash back for a purchase at a Restaurant, the restaurant isn't the one offering the discount.
I doubt Chevron applies since all overturning Chevron did was to allow courts to review executive expertise. That already happens with taxes. It's called tax court. Your second point is moot since the IRS isn't pursuing points as taxable.
Jasmine is a beautiful fragrant flower, a natural perfume of finest quality. This flower plant is grown in warm countries like India, you can get these plants in Indian stores in the west.
Jasmine, what about referring a friend to a credit card and getting a referral bonus that’s given in points? Chase sends out 1099s for this, but Chase is giving points not cash.
I transferred points from AMEX to JetBlue and taxed on AMEX to transfer points to JetBlue and also taxed on JetBlue to use points for purchasing airplane ticket. Is that legal for them to double tax? P.S. My AMEX card is personal and also a JetBlue is personal.
If you are a regular citizen they are not taxable because it's not earned income they are simply DISCOUNTS or CREDITS but if you are a business and buying tax deductible supplies with a CC then they are taxable. If someone gives you money as a gift it is NOT taxable under (or even reportable under 17,000) so how is money found on the ground taxable? It has to be earned income to be taxable.
How about a cash reward for paying my electric bill, etc., with my credit card? I have never gotten a statement from my credit card company, so I assume it is not taxable.
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Great info. Thanks!
wow learn something new thanks
I didn't know that IRS made the wrong argument int that case. I get the feeling that it was done on purpose though. There seems to be no incentive for the IRS to win that case and potentially have to start regulating or taxing cash back programs because companies make a business mistake.
They can tax your credit card rewards, but won't bother to deduct the interest you were charged on that same card which probably exceeds those rewards. The irony...
hey Jaz°! {17602
(?) would U like to cover this video/topic:
'Do You Know The
11 Types of Income
the IRS Doesn't Tax'
[2024 Feb 25
{qv th-cam.com/video/3nOdI0UlEYo/w-d-xo.htmlsi=dTpDs5YU3GyQzUxr }
I dislike taxes for one main reason: the government requires individuals to calculate their own taxes and imposes heavy penalties for mistakes. While I have no problem paying taxes as a US citizen, it seems strange to me that I have to do the paperwork when the government already has all the necessary information.
I don't regret the financial mistakes I've made in the past, as they've all taught me valuable lessons. However, my biggest misstep was planning my finances without consulting a licensed financial advisor.
I sought the guidance of a financial counselor, and as I near retirement, their advice has proven invaluable. I was initially concerned that compound interest on index funds wouldn’t suffice since I started investing later. It's quite amusing to realize that I’ve outperformed colleagues with more investment experience, having gained over $386k tax-free.
This is definitely significant! Do you have any recommendations for professionals or advisors I could contact? I really need guidance on proper portfolio allocation.
Rebecca Lynne Buie is the coach who guides me. With years of experience in the financial markets, her strategies have worked well for me and contributed to my success. She offers clear entry and exit points for the securities I focus on
Thank you for the tip. I found your coach online and conducted my due diligence before scheduling a call. Based on her resume, she appears to be highly proficient.
That was perfect. No time-fillers, no beating around the bush, no nonsense. Straight to the point, concise, and covered all the important and relevant aspects to the topic. Great presentation. Thanks for the great content.
You're welcome! Glad you enjoyed
What if you haven't received the perks
For reals
The vid is over 12 minutes long.
No credit due for being concise.
Are you kidding? I almost fell asleep around 1:50
This channel has the most useful tax information that is pertinent to me. Thank you for all your work in educating people on taxes!
Was a little bit worried that I was about to find out my cashback rewards were supposed to have been taxable the whole time, thank goodness that's not the case! 😌
Me too, but they would have to figure it all out and come find me to get it.
Not exactly a CC reward taxation example, but I had a similar taxation issue after opening a savings account. There was a $250 reward (cash credit to your account) if you maintained a certain avg balance over x months. Sure enough got my reward credit, but then during tax season got a 1099-INT that not only included my YTD interest earnings, but also the $250 reward tacked on as interest income. That was a bit of let down. lol.....I mean it does make sense, it was essentially bonus interest income rewarded beyond the stated rate, still annoying at the time lol.
I have taken advantage of offers like that a few times and it was always been clear up front that was the case, but my effective tax rate has always been rather miniscule.
That's EARNED INCOME so it needs to be accounted for on a return. Points back on a CC is not earned income, they are simply discounts and credits so you are spending less NOT making more.
I thought the reward was a gift from the buisness.
Just noticed this all of a sudden with this video- you're clearly making a great effort to consistently use your hands and face to express your points and keep the video engaging. Honestly, it's really impressive once you start to notice it. Thank you for doing that since the topic is of course fundamentally a dry topic that is difficult to make engaging.
agree, yet her valley girl/vocal fry/voice works against her.
@@Poter3581 Didn't your mother ever teach you, that if you have nothing nice to say then say nothing?
Jasmine, you make the best tax content on TH-cam. Please keep going, it is so helpful to me as a small business owner. Thanks for putting in the extra effort.
I love how casual you are about that TH-cam plaque! Put that shit on the wall girl! You deserve it. Celebrate your wins.
Jasmine, I love how thoughtful and well-researched all your videos are! Thanks for the insight - good to know cashback vs points and personal vs business. Please continue to make educational videos!
What about a credit card statement ?!!
Income tax is totally unlawful !!
That has only brought 5% more expensive growth in everything in decades of credit card industry.
Preach! It's enough to make anyone want to crawl under the covers. These news cycles can be brutal.
How ??!
It's really wise to have professional guidance
Income tax was paid on the initial money that was spent. Sales tax was paid on the total money that was spent. Getting anything back is only a small percentage being returned on money already taxed twice.
Hi Jasmine! Wow, I never really thought about rewards being taxable. Excellent content. Keep up the Great work Jasmine
Former employer had a bunch of LLCs. Dealerships. Would make sure at the end of every day to inventory swap all their parts to max out their credit cards, and then buy the parts back. The cashback was greater than the transaction fee… shhh, don’t tell anyone, and especially not the fact they brought in a CFO that opened up accounts in the Caribbean and Europe. I’m sure it’s all above board.
The only time I know anything is taxable from my bank/credit card is when I get that 1099 form in February telling me how much interest/dividends/etc I get to enjoy paying taxes on.
Have fun at your IRS audit!
irs isn’t coming after rewards
Enjoy your crow
Jasmine, thank you so much for all this tremendous direct-to-the-point content! I really enjoy your educational videos!
Great presentation. I'm studying for my EA and have always had a geeky interest in reading the law and court opinions. My biggest takeaway from your video was the importance of research to understand the position of the IRS on matters, as well as how it might change.
Refreshing to see somebody who knows their stuff take time to talk to the public! A question: If the credit card is used by a private person to purchase a good or travel for business purposes, and they get reimbursed by the company employer; then they effectively made money on the cashback rewards. Is that then taxable?
This is a very common situation for corporate employees who travel or purchase materials for construction, etc.
Hmm... I'm not a lawyer. But it seems to me that you are basically buying something and then turning around and effectively 'selling' it to your company at the same price. In general if you purchase something for personal use and sell it at a profit, that profit is actually taxable. So if you bought those tickets, and get a reduced cost (owing to cashback rebate), you MIGHT have to claim the sale to the company with profit. But if you buy it and just get 'reward points' to be used at some future point, then the IRS has already said, "yeah, it might be taxable but we're just not going to track it.... yet".
I am also not a lawyer but agree with Mike's assessment. I travel for work some so this could apply to me. I'll add that if the IRS ever wanted to start tracking that and collecting it would be a nightmare. I would personally get a separate credit card that does not have cash back rewards to use for business related purchases to avoid the hassle. Either go with no rewards or get an airline miles or hotel points card since the IRS has stated those won't be taxed.
No not taxable. Just a benefit based on circumstances.
You aren't going to report reward earnings on your taxes. It's simply a relief from Sales tax (theft).
The fact that experts who study the law and IRS guidance is necessary evidences the inherent flaw in the design of our system of taxation.
So does the same apply to every single different type of lawyer (Criminal, corporate, medical, civil etc.)? All laws should be simplified because the average person can't interpret them?
That is best tax presentation I ever heard. I had long wondered about that. Now I know. Thank you.
I learn so much from each video you post each one is packed with terrifically 😢useful information. Thank you!
glad i found this channel. her explanations are pretty easy to understand.😊 thank you 🙏
JD, CPA, EA... Congrats on your very impressive resume!
Great explanation! It sounds like it is always a better plan to take business credit card rewards as points/miles vs. cashback.
Credit card rewards are a credit back on money you spent. A discount on the price, not income. Taxing them would be like taxing coupons.
You saved $10, oh, your going to have to report that as income...
I agree. Otherwise, taxing discount coupons at the grocery store would also be justified.
no it is a debt forgiven, and forgiven debt is already taxable
@wouldntyouliketoknow9891 Well I guess getting something on sale is a debt forgiven too. The MSRP is much higher. This is all a treading a thin line about the precise timing of when the money gets returned.
Technically that money comes from businesses that pay for cc processing. It's a bullsht setup. The us has around 3% cc fees. The eu has .3%.
@sprockkets No, it comes from the customer in the price of the product. The company then pays from that money the 3%. So getting some of that money back, is getting your own money back.
But it can be argued multiple ways if you ignore the entire transaction and because the money changes hands three times. Customer, company, Visa, customer. The government is probably looking at only Visa and the customer. Which then looks like Visa is paying them and counting as income, but that ignores the entire transaction. Awfully convenient for them to ignore things like that in their favor...
i dont even live in US , i live in Bergen Norway. i enjoy following you. ❤
You think that makes u special?
Best channel with real world guidance.
Thanks so much for going through the actual law. I will now keep a look out if the law decides to change. I feel people would be hesitant to use reward credit cards if taxes were involved.
Of course! I love going through the ACTAUL tax law, haha
It's not when used, its when earned.
And I feel like people would switch to cards that earn straight cashback instead of miles.
Majority of my cards are the former kind, and they are usually better, so no loss there.
How about, expenses paid with your credit card that your employer reimburses? You receive cash back on those credit card purchases you made on behalf of your employer?
The way she teaches math is amazing.
awesome channel, found u on shorts. u have grown crazy fast; not hard to do when ur competition is a bunch of pump&dump crypto bros who struggle to articulate how a 1099 works or thought FTX was a solid investment, you are the voice of reason in the abyss of nonsense money/ finance youtube pit. Thank you
I always understood this: Anything bonus requiring you to spend money is a rebate ( cardholder reward). The thing that is taxable are rewards/bonuses for checking/deposit accounts, no spending requirements only savings.
A corollary question. What about state sales tax? In Texas the sales tax is paid on the net purchase at time of sales after discounts like store or manufacture’s coupons, but not mail in rebates. What are the rules for stores like Sam’s that give you a credit in your Sam’s account for a percentage of the purchase? The purchases comprise both sales tax and non-sales tax items.
If I don't receive a form 1099 or any forms from the bank, then I don't claim it. It's not my job to do the banks job. The IRS is form driven so no forms, no claims. My opinion.
My opinion as well.
What if I refer someone (without spending money) and receive points? From what I’ve seen online, those would be taxable because it is no longer a rebate.
Great question and I’m definitely interested in her response (hopefully)… but based on her comments this might falls into the category of not worth pursuing because it’s hard to place a definitive value on the points… 🤷🏽♂️🤷🏽♂️
@@anthonyhobson367after watching the video, I feel like they could be classified in the same way for the same reason. Guess we’ll see.
Can I just say, Jasmine, you are _winning_ on personal branding. Please please please take yourself to #1.
Your presentation would have been more understandable if you had included a visual to show the process of the Visa gift card scenario rather than just reading the courts explanation.
Yes, but you could argue that the reward is only a return of a portion of the money you spent. Like a refund. The reward is an excess of the charge you paid that the company chooses to return to you. It is not like a lottery ticket where the reward is in excess of what you paid. The reward is a discount for being a loyal customer.
How does it work in an example of using Amazon points to buy items from Amazon? Is it treated like a reduction in cost to the points of getting the item for free? Also, on the note, are gift cards taxable, or are they also a reduction of cost and therefore not taxable?
Good question. I use use my reward points for an Amazon gift card. Never got a statement from the bank saying they are taxable like I do with earned interest.
Such a trustworthy person. Thanks. 😊
Great stuff! From what I have been reading about FF miles, there's no net value to them anyway, so the IRS is doing the right thing by ignoring them for the time being.
Awesome video yet again… I appreciate the distinction you established between cash rebates/reward points and cash credits for opening new accounts, and why the latter is taxable 👍🏾👍🏾
So glad you enjoyed the video!
This was an excellent analysis, but I think you're missing the bigger picture.
Let's say the IRS argued what the judge said they should have argued in Anikeev and the IRS had won the case. In doing that the court would have fundamentally changed tax policy for every business in America that uses a credit card, who would also then be subject to the specifics of the Anikeev ruling. That's a lot of businesses that could be affected overnight!
Then throw in the other complexities you bring up in valuing reward points and it's a mess. And let's make it even more fun: Let's consider rewards cards that earn 5x points at restaurants for business meals, which themselves are often limited to a 50% deduction. Want to recalculate that "income" to factor in the different earn rates and then exclude 50% of that particular earn rate on some expenses? That is the path to madness.
That's what the IRS may have caused if they argued this case the right way and happened to create precedence in the process. I believe it's more plausible that once the IRS realized that could happen they intentionally chose not to make their best argument.
What about cash back rewards on purchases that are reimbursed? My company lets me use my personal card for purchases and they reimburse me weekly. So I end up with a 2-3% gain on every purchase. So far haven’t really found any info in this situation.
Interesting , I used to get 1099 Misc for "spiffs" from manufactures or their repping firms for selling their brand product over maybe some other brand products. Sometimes there would be a "contest" with various prizes , those too were 1099'd. If the value exceeded $600 for the year from any one brand or a combination of brands repped by one repping company you'd get a 1099.
Video idea: Please make a video comparing the BAR and CPA exam.
all this information helps me with my personal taxes and my starting business
So glad to hear you find it helpful :)
Shhhheewwww! I have $3k saved up and this video made me NERVOUS! Wouldn’t surprise me if the IRS found a way in the future. Safe for now as mentioned…Great job once again!
It is crazy for any rules to exist, because it is not a gift or income. The merchants charge everyone more to pay the credit card companies transaction fees. When you get "rewards" they are just a partial REFUND of the credit card fees hidden in the price you paid.
I have always wondered why the irs has never taxed airline and hotel points - I travel for work and accumulate a ton of these points which can have significant value - shhhh!!
A bit confused here. If I buy a car let's say for 30k and get a 5k cash reward back. Do I pay sales tax on the full 30k purchase and get to keep 5k tax free, or am I paying the sales tax only on 25k in this case? And how do you explain all of that to DMV then that you got the car with a discount and got the difference back after the purchase. I bet the paperwork and the wording in it may be confusing to the brightest minds of the dmv. Most likely they still charge you the tax for the full 30k, how do you file for it during the tax return time?
You taught me a new word. I had never heard the term prospectively before.
Retrospectively prospectively is a better descriptor
@2Big2Fail2Day not really. Concurrent means at the same time. As in serving multiple sentences concurrently.
Credit Card rewards are the equivalent of a price discount on purchased goods, NOT INCOME. If anyone is interpreting them as income, they are in err.
So if a rebate is a reduction of the basis, does that mean that the inflation reduction act credits should be calculated on cost net of any utility rebates (not offered by the seller but included in the formal quote from the seller)?
I must say your videos make me nervous. I use a CPA because tax the government makes me nervous.
But thanks. You're providing good information.
Why is this not just consider a discount or sale on the cost of goods.
You said the magic word about half way through.
Rebate.
I have 40+ rentals. And also own a restaurant. Combined gross income is over 2m for the year.
I use 2 cards. A 2% cash back net 30 Capital One. And a Chase Reserve for particular types of purchases.
Hold your breathe…
$57,932 last year in cash rewards. This year will be over $64K.
We use a card for every single aspect of our business except for payroll. If a vendor doesn’t take a card, we don’t do business. Period. It’s 2024 take a card.
We go on 4 really nice vacations every year.
Good - your lose, I don't wish to use your credit card as payment - if you don't have cash - your not buying!
Not getting into my pocket for your business ventures --- if you are buying in regular bulk, then you can arrange a fund transfer from your bank payment COD.
If you need OPM - get a loan
Sounds like with 2m revenue you still can’t figure to go to a valuation, if it wasn’t coming with cash-backs.
I wonder if Mikey even picked up on the point of this video that all those cash rewards are taxable...
I also wonder how much Mikey pays in credit card fees since many vendors will charge for using a credit card. I also wonder if Mikey even knows.
@@notpublic8961
People don't understand credit card is a game of chaining your future to death by enslavement...
It's a tool to use for personal stuff and bills as long as you use it correctly...
In business - it's not smart 🤓 - if you need a line of credit, open a bank account for that...
Definitely don't mind debit cards - but cash is King 👑 -
@ lol. Funny guy. Only my grandpa calls me Mikey.
And it’s called a rebate.
As long as you spend something to get something it’s a rebate. Real simple.
Fellow LLM tax here
Great job explaining the material!
However, I think you'd get a different result if you were discussing referral bonuses that many CC issues pay to their users when they refer others to become card holders. These cannot be, IMHO, characterized as rebates on purchases, such as most sign-up bonuses are.
This has been reviewed by the IRS. Credit card rewards are viewed as rebates or discounts, not income, for personal purchases of goods and services because they do not affect personal tax deductions enough to be worth pursuing.
Still confused on personal credit card cash rewards. For example, banks like chase and even Apple Card give you a percentage of cash back for every qualified purchase. Don’t banks usually send you a 1099-MISC for those amounts? And if the cash back is less than $600 for the year, aren’t you still technically required to report that as other income (even though we know no one likely will do that)?
Love your long form content!!
Thank you!
I have had to pay taxes on my frequent miles for years now.... when they report it to the IRS... then its taxable....
So I’ve heard of a crypto back card from Gemini. How does this fit into the whole system?
This was a much needed video
I missed. 1. If you take cash for CC rewards, is there a tax? 2. If CC cpmpany allows, I transfer the accumulated points to a relative, is there a tax, if so who gets taxed?
Excellent. I would have like to seen the scenario of a business purchase reimbursed by the employer. Since no deduction is taken by the employee, I gather these would be taxable. However, some employees may incur interest charges between purchase and employer reimbursement which I wonder if adjusts their basis?
I think I understood the video, but I have a question. Why doesn't the IRS treat points similarly to cash in that they effectively represent a lowering of the price of the item where you can use those "point savings" on other items from a limited list? Example: "I use my cash back on a plane ticket" versus "I used my points for a plane ticket". Both represent value from the card that effectively lowers the price of stuff I bought with the card by the plane ticket's cost. Both just let me get more stuff from the same amount of spending. Does it have to do with the value of rewards in comparison to cashback?
I really appreciate you walking through the analysis. The topic is uninteresting, analysis good.
Hi I have a nuanced question wondering if you would have an answer. This relates to Supreme Court case commissioner versus Glenshaw glass “over which the tax payers have complete dominion” my question is in regards to that as I’m a profesional gambler and sometimes use offshore sportsbooks which have high rollover (amount to wager before being able to withdraw) if I made $20,000 on this offshore sportsbook but still couldn’t withdraw as I didn’t yet hit the rollover requirement in the year that I made that money do I not have to declare that as income until I reach the rollover requirement? IE I could push the taxes back a year if I wait to hit the rollover at the beginning of the new year. Would love an answer.
I was under the impression they weren’t taxable because it wasn’t a net gain on income. Spending $100 to get $2 back didn’t get you $102 overall, but just a discount essentially. The same rationale applied to sign up bonus worth $1000, because you had to spend money to get money it was still treated like a discount
For non-business expenses of $100, then yes.
Yeah, it's hard to watch your assumptions get obliterated, isn't it?
send me a 1099 pompous rear end
I think that's what she said.
That was my thought, the rewards are a rebate, it's an enticement to continue to conduct business with a vendor, they do points or cash back so they can hold the money. It is a different animal when you earn points/miles for a business expense and then redeem said points/miles for non-business expense. But I totally understand the logistics of trying to value miles or points as they generally do not have a cash value and can be redeemed at various values so there is no point in the IRS trying to tax these.
That was a fantastic video. Thank you!
Each year the owner where my wife works runs more than $2,000,000 through his American Express card! All for the points!
Suggestion for Future Video: 1099 vs W2 for S-Corp's Reasonable Compensation
A Virginia LLC treated as an S-corp is owned by a Wyoming single-member LLC. Rather than the S-corp paying W2 wages, the Reasonable Compensation could be paid to the WY LLC as 1099 management fees.
"The IRS will reclassify all 1099-MISC payments made to S Corp owners as W-2 wages."
However, in this scenario, the owner will be an LLC (with a management agreement with the S Corporation). Because the LLC owner is not an individual, it cannot be an employee, and cannot be issued a Form W-2, so under the IRS's own rules, it seems that the S Corporation would have to pay the LLC owner reasonable compensation as Form 1099 management fees.
Gosh. I really like the word rebate. Not cash back. Because if you had to spend something to get something by definition that’s a rebate right?
Like purchasing a new car. I received a $2000.00 rebate on a 40k new car, I’m not aware of having to pay tax on that rebate.
Hey speaking of rebates, my mom in the 1970’s would mail in every rebate on everything she purchased!
She’s 72, I’ll tell her she’s getting audited.
Jasmine I’d be honored to help you with comment moderation. There’s tons of fake conversations under other comments directing people to get financial advice from influencers, if you’d like to knight me as a moderator I’d happily slay the spam dragons for you as aggressively or not aggressively as you like…but those recruiters in particular have to go
Anikeev v. Commissioner is such an interesting case! great video.
This is a great video!
I love that infinite money glitch those people found. I assume it has since been patched.
I'm a little confused on the ending, so does that mean if you take a business cash back reward and transfer it for personal use does that still seemingly comply? Or is it only if the reward is generated with personal money? It seems like if you use the reward for personal items it wouldn't trigger that because you're not doing the double dipping or am I missing something?
I think I may have missed it. Was there a clear determination where gift cards sit in your summary at the end? As frequent flyer miles or as cash? I can see rhe argument for either related to business.
Got damn, this is helpful and detailed.
Wild that this is free-game.
So does this mean there's now a legal argument that if I purchase with a cash back credit card, "reducing the purchase price" I should pay less sales tax?
Hi 👋! I’m Andrew and live in Virginia. Is the rebate thing applicable to sites like Rakuten?
If they start taxing cash back people will try saying "Well I spent $100 to earn that $1 in cash back, so that $100 is an expense that I'm now going to deduct." Obviously that won't work, but people will try it.
With the apple card you have and option for cash back to to be transferred into a high yeald saving account. Is the cash back transferred to that account taxable?
Question - regarding the Chevron being overturned... does this open the door for challenges on IRS Guidance and Treasury Regulations if it's not clearly outlined in the statute and has limited relevant case law?
With the rewards that can't be redeemed for - that seems like an agreement between the customer and the business that isn't really linked to a dollar money amount. Just because the airline says you have X dollars worth of miles... the end result is them giving you a discount, so I don't see how getting a discount for a purchase should be taxable.
With rewards that can be redeemed for cash or that have a cash value that can be used anywhere, I could definitely see how that could be considered taxable. Even the precedent/guidance presented in this case goes against cash back because if VISA gives me cash back for a purchase at a Restaurant, the restaurant isn't the one offering the discount.
I doubt Chevron applies since all overturning Chevron did was to allow courts to review executive expertise. That already happens with taxes. It's called tax court.
Your second point is moot since the IRS isn't pursuing points as taxable.
Jasmine is a beautiful fragrant flower, a natural perfume of finest quality. This flower plant is grown in warm countries like India, you can get these plants in Indian stores in the west.
Jasmine, what about referring a friend to a credit card and getting a referral bonus that’s given in points? Chase sends out 1099s for this, but Chase is giving points not cash.
Would there be anything illegal about putting cashback or an equivalent thereof into an IRA?
Question on Amex points transfer to Schwab IRA account. Charles Schwab allows for transfer above the contribution limit. Is this legal?
I transferred points from AMEX to JetBlue and taxed on AMEX to transfer points to JetBlue and also taxed on JetBlue to use points for purchasing airplane ticket. Is that legal for them to double tax?
P.S. My AMEX card is personal and also a JetBlue is personal.
Do you also provide international tax using CFCs and asset protection?
The IRS isn't bound by its "guidance." Bobrow v. Commissioner.
Great content. What about investment brokerage credit card rewards deposited directly into an IRA? For example, Fidelity and Robinhood credit cards?
Great information. Hope to win the Bradford tax law subscription 😊
How would this impact cash rebates on deductible donations?
The IRS messed up, shocker
If you are a regular citizen they are not taxable because it's not earned income they are simply DISCOUNTS or CREDITS but if you are a business and buying tax deductible supplies with a CC then they are taxable.
If someone gives you money as a gift it is NOT taxable under (or even reportable under 17,000) so how is money found on the ground taxable? It has to be earned income to be taxable.
How about a cash reward for paying my electric bill, etc., with my credit card? I have never gotten a statement from my credit card company, so I assume it is not taxable.
Then how does COSTCO year end cash back check? Taxable?