Can I Cash Out My Points? Exploring the Tax Implications
“Can I cash out my points?” This is a common question among individuals who accumulate points and miles through credit card rewards programs. While we have already discussed the options for cashing out points and whether it is worth doing in terms of the value you’ll receive, another important aspect to consider is the tax implications of cashing out your points.
To gain insights into this matter, we consulted with a tax specialist to discuss any potential tax implications for individuals who decide to cash out their points. The question arises because banks sometimes send out 1099s for referral bonuses, so it’s reasonable to wonder if the same applies to credit card rewards.
When it comes to personal use of rewards earned by making purchases on a credit card, the tax treatment is relatively straightforward. Jackie Meyer, a CPA and founder of tax advisory software TaxPlanIQ, explains that the IRS treats these rewards as discounts or rebates, rather than taxable income. As a result, from a personal level, cashing out credit card rewards is not taxable.
However, from a business spending perspective, the matter can become more complex. The value of credit card rewards could potentially be subtracted from total business expenses. Meyer acknowledges that there isn’t much regulation surrounding this issue, and she hasn’t seen the IRS pursue anyone specifically for cashing out credit card rewards. Therefore, it remains a gray area.
Meyer advises points and miles enthusiasts to use their credit card rewards for personal spending to avoid any potential complexities. As a business owner herself, she personally accumulates a significant number of points through both personal and business expenses. To simplify matters, she suggests utilizing those points for personal purposes rather than mixing them with business expenses.
While there are instances where earning points or miles may have tax implications, such as referral bonuses earned without making a purchase, cashing out credit card points for personal use is generally not something that needs to be claimed on your taxes.
In summary, the IRS does not historically view credit card rewards as income. Therefore, most individuals who cash out their credit card rewards should not need to report this on their taxes. However, it is always advisable to consult with a tax preparer or a tax attorney regarding any specific tax filing requirements related to points and miles, cashing out points, or any other related matters.
In conclusion, cashing out points can be a convenient way to utilize your credit card rewards. And while there may be some complexities surrounding the tax implications, it is generally not necessary to report these cashed-out rewards on your taxes. As always, it is best to seek professional advice to ensure compliance with tax regulations.