Are business credit card rewards taxable?

Yes, you can redeem business credit card rewards for personal use. However, there are reasons you may not want to. After all, business credit cards are designed with business owners in mind, so the cards’ rewards and benefits are geared more toward business needs than consumer needs.

What You Should Know About Business Credit card Rewards... read full answer

• Business credit card rewards are deductible expenses: Credit card rewards are generally not taxable, but the IRS will expect you to subtract them from your business expenses report. You'll have to consider the rewards as discounts on your business expenses, which will reduce the amount you're able to deduct on your taxes. Plus, if your business is a corporation or an LLC, earning rewards on personal expenses may threaten your liability protections, so your personal assets can be at risk.
• How to use your business rewards: Financial professionals don't recommend mixing your business and personal accounts, especially if you are not the only owner of your organization. So, instead of using rewards for personal purposes, you can use them to boost your business, such as funding some of your company’s operations.
• How to maximize your rewards: Make sure to analyze your business spending when earning rewards. Then, redeem those rewards wisely. To do so, take into consideration the redemption options, as some may offer more value than others.

It’s also worth keeping in mind that business credit cards are not covered under the CARD Act. So, certain protections like being notified before an interest rate increase do not apply to business credit cardholders. However, many issuers have extended CARD Act protections to include business credit cards. But this is not a legal requirement.

Usually a business rewards card gears toward business related perks anyway. So, you might get more value from one of the best personal rewards credit cards instead.

Credit card rewards are not taxable in most cases. The IRS views credit card rewards the same way they view discounts, and discounts aren’t taxable. Rewards credit cards give points, cash back, or miles on purchases, which you can then redeem for statement credits, gift cards, merchandise, and travel expenses. Because of that, it’s like you’re getting a small discount every time you make a purchase.... read full answer

There are some situations in which credit card rewards may be considered taxable income. Many credit cards offer a signup bonus for new cardholders that is rewarded once they meet a minimum spending requirement. For example, you might get $150 for spending $500 within the first three months. If you receive a signup bonus for meeting a spending requirement, that bonus is not taxable. However, if you receive a bonus without meeting any spending requirement, then it is considered taxable income. To make it simple, if you’ve done nothing in exchange for the rewards, they’re considered taxable.

Currently, though, there aren’t any credit cards offering bonuses for nothing in return – at least any you have to worry about tax-wise. Even credit cards that don’t have a high minimum spending requirement usually require that you make a purchase before receiving the bonus. Others just give you a gift card, which isn’t considered taxable income, either.

When it comes to anniversary and referral bonuses, lines aren’t as clearly drawn. Some anniversary bonuses require that you spend a certain amount each year to receive the bonus, or renew the card by paying the annual fee. In these cases, an anniversary bonus clearly falls into the “not taxable” category. Referral bonuses, on the other hand, likely will be considered taxable income. American Express and Chase even send out a Form 1099-MISC to file with the IRS after cardholders earn referral bonuses.

Business credit card rewards differ slightly in terms of whether they’re taxable or not. While the actual rewards you get from your business credit card aren’t taxable, the IRS will expect you to subtract them from the business expenses you report. You’ll have to consider the rewards as discounts on your business expenses, which will reduce the amount you’re able to deduct on your taxes.

To sum things up, the only times you have to be concerned about credit card rewards and taxes are if you have a business credit card or you receive a bonus without doing anything to get it. Other than that, you can enjoy the rewards you earn without a second thought.

You can account for credit card rewards by recording them in the “Other Income” or “Credit Card Credit” sections of accounting software such as QuickBooks.

Here’s when you need to account for credit card rewards:

• Personal credit cards

  You only need to account for credit card rewards that you receive without having to spend any money. Examples of rewards you need to account for may include referral bonuses and any initial bonus with no spending requirement. The IRS considers these types of credit card rewards to be taxable income.... read full answer

  In contrast, the IRS treats spending-based credit card rewards as discounts rather than income. So, individuals don’t have to worry about keeping records of those for tax purposes.

• Business credit cards

  The rules are a bit different for business credit card rewards. You should keep track of any cash back, points, or miles you earn on a business credit card because you will have to subtract the value from your reported business expenses. They’re still discounts, but they’re discounts on a business expense, so the amount matters to the IRS.

All that said, U.S. tax law changes every year, and it’s full of nuance. If you have any concerns or questions about whether your credit card rewards count as taxable income, you should contact the IRS or a CPA to ask your question directly.