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
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.
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.
No, most business credit card rewards are generally not taxable, as they are not considered income. The IRS usually views most credit card rewards as discounts or rebates. But even though most rewards are not taxable, there are some strings attached with regards to deductible business expenses.
What you should know business credit card rewards when it comes to taxes:… read full answer
While most rewards you get from your business credit card aren't taxable, the IRS will still 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. You can only deduct the net cost of your purchases and any credit card rewards can lower that cost.
So, if you made a $100 business purchase, you would normally be able to deduct the whole amount on your business taxes. But if you earned $10 on that purchase, its actual cost would only be $90, which is all you'd be able to deduct.
Note there are a few particular situations when your business credit card rewards are taxable. For instance, if you receive a bonus without meeting any spending requirement, it would be considered taxable income.
Referral bonuses are an example of bonuses with no spending requirement. Since these would be considered taxable income, some credit card companies may even send you a Form 1099-MISC to file with the IRS if you've been a recipient of such bonuses.
So, although most credit card rewards are not taxable, there can still be tax implications depending on how you use them. If you pay for business expenses with reward points or miles, you won’t be able to deduct those expenses as business purchases since you didn’t technically pay for them.
No, it is not illegal to use a business credit card 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. Using a business credit card for personal expenses can also make things a little harder when it’s time to file your taxes. You cannot deduct any of the personal expenses charged to a business credit card as business purchases. If you do have too many deductions, it’s likely the IRS will get involved, and that can make things very painful.… read full answer
The rewards with business credit cards are also different from what a consumer might need. For instance, many business credit cards reward you most for expenses like office supplies and telecommunication services. Business credit cards often come with other features that aren’t as important for consumers, too. For instance, many business credit cards have very detailed expense tracking and spending reports.
Another reason to avoid using a business credit card for personal use is that business credit cards aren’t covered under the CARD Act. The Credit CARD Act of 2009 introduced a number of regulations to protect consumers from abusive practices by credit card issuers. However, business credit cards were excluded from the CARD Act. This means business credit card users don’t have to be given notice before their interest rates get increased, among other things. While many business credit card issuers have voluntarily extended the CARD Act protections, it’s not a requirement.
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