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Are my credit card rewards taxable?

Cash back and points are usually not taxable, but using rewards for business purchases can affect your deductions

Summary

As a business credit card holder, you may be wondering if the cash back or points you earned in 2019 are taxable. According to experts, there are definitely differences to keep in mind when you’re using a business credit card compared to your personal card.  

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With the IRS extending the filing deadline for tax returns, you have an extra three months to get all your tax documents together.

As a business credit card holder, you may be wondering if the cash back or points you earned in 2019 are taxable.

According to experts, there are definitely differences to keep in mind when you’re using a business credit card compared to your personal card.

“Credit card rewards for individuals are usually not taxable,” says Susan Allen, senior manager for tax practice and ethics at the American Institute of Certified Public Accountants.

“The logic is that the reward is almost like using a coupon or getting a discount on the purchase,” Allen says, so by getting cash back, “it’s really like reducing the purchase price.”

See related: 10 things to know about business credit cards

Are business credit card rewards taxable?

But it’s a different story if you have a business credit card and you use your rewards, such as cash back or a gift card, to help offset your business expenses.

“Deductible business expenses must be reduced by the rebate,” says Tim Yoder, tax and accounting analyst at FitSmallBusiness.com.

Meredith Tucker, a principal at the CPA and advisory firm Kaufman Rossin, cites the example of a business owner who charges $1,000 on their credit card for business travel, and uses $200 they earned in cash back to reduce their out-of-pocket cost to $800. In that case, they can only write $800 off their taxes.

And if you use only your rewards to cover the price of a purchase, you won’t be able to deduct the cost of the item from your business expenses, Tucker says.

As a business owner, you may prefer to use rewards to cover the cost of an item. That way you “don’t have to pay for something, rather than just get a deduction for it,” she says.

Along with tracking your business expenses, business owners need to keep track of how they are using business credit card rewards to offset their business expenses when tax time rolls around.

You also need to pay attention if you open up a new credit card and receive a cash bonus for signing up (rather than meeting a minimum spend), or get cash for referring a friend for a credit card.

That extra $100 or $200 you scored could be considered as taxable income.

“Some credit card issuers may report the bonus as income on (IRS) Form-1099,” which reports miscellaneous income, Allen says. “You would need to report that income on your tax return.”

See related: Tax season guide to small business expense deductions

Which business rewards credit card should I get?

When it comes time to look for a new business credit card “be sure you shop for a competitive rewards program,” Tucker says. Depending on your business and preference, you might opt for a business card that rewards travel, or one that offers you cash back on your purchases.

Here are some cards you might want to consider

American Express Business Gold Card

With the American Express® Business Gold Card, you can earn 35,000 Membership Rewards points if you spend $5,000 on the first three months after opening your card. You also get 4X Membership Rewards points on the two select categories where your business spends the most (capped at $150,000 per year) and earn 1 point per dollar for other purchases.

The card offers a 25% bonus on points redeemed when booking a flight using Amex Travel, with a limit of up to 250,000 points back per year. But the card comes with a hefty price tag, in the form of a $295 annual fee.

Capital One Spark Cash for Business

The Capital One® Spark® Cash for Business offers $500 cash back if you spend $4,500 in the first three months after you open your account. You also earn 2% cash back on all your purchases, with no limits. The card’s $95 annual fee is waived in the first year.

Hilton Honors American Express Business Card

The Hilton Honors American Express Business Card offers 125,000 Hilton Honors points if you spend $3,000 in the first three months. Earn 12 points per dollar on Hilton hotel and resort purchases; 6 points per dollar on select business and travel purchases; and 3 points per dollar on other purchases. It has a $95 annual fee.

Ink Business Cash Credit Card

The no-annual-fee Ink Business Cash Credit Card from Chase offers a $500 cash back bonus if you spend $3,000 in the first three months after you opened the card.

You also earn 5% cash back on the first $25,000 spent at office supply stores, internet, cable and phone service on your account anniversary; 2% cash back on the first $25,000 spent at gas stations and restaurants, and 1% cash back on all other purchases.

Southwest Rapid Rewards Performance Business Credit Card

The Southwest Rapid Rewards Performance Business Credit Card earns 70,000 points if you spend $5,000 on purchases in the first three months and earn another 30,000 points if you spend $25,000 on purchases in the first six months.

You get 3 points per dollar spent with Southwest Airlines; 2 points per dollar spent on social media and search engine advertising and internet, cable and phone services; and 1 point for all other purchases.

If the card’s $199 annual fee is cost-prohibitive, you might consider the Southwest Rapid Rewards Premier Business Credit Card. It has a more manageable $99 annual fee and offers 60,000 bonus points if you spend $3,000 in the first three months. You earn 2 points per dollar on Southwest purchases and 1 point per dollar on all other spending.

See related: How to get a business credit card

Bottom line

Many business credit cards offer generous sign-up bonuses that you can use to cut your company’s costs. As long as you’ve earned them by meeting a minimum spend, there should be no need to report your bonus points as income next year. Just be aware of how using rewards can affect your business deductions.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: July 8th, 2020
Business
13.91%
Airline
15.48%
Cash Back
16.09%
Reward
15.82%
Student
16.12%

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