Are Business Credit Card Rewards Taxable?

Credit card rewards can feel like a win, especially when you're running a business and looking for ways to cut costs. But when tax time comes around, things get a little tricky. Are those rewards considered income? Do you need to report them?

A recent survey found that more than two-thirds of small business owners use credit card rewards to support their business, but many aren't sure how it affects their taxes. That uncertainty can lead to costly mistakes.

This article will help you make sense of it all. You'll learn which types of rewards might count as income, which ones don't, and what steps you can take to stay organized and avoid trouble when it's time to file your taxes.

Key Takeaways

• Most business credit card rewards are not taxable if they're earned through spending, like cash back or points on purchases.
• Bonuses or rewards that don't require spending, such as sign-up offers or referral bonuses, can be considered taxable income.
• You may receive a 1099-MISC form from your card issuer if your non-spending rewards total $600 or more.
• Only business-related expenses are tax-deductible, not the full credit card payment.
• Keeping good records and using your card wisely makes it easier to track rewards, claim deductions, and avoid tax issues.

How Business Credit Card Rewards Work

Business credit cards come with different types of rewards. You might earn cash back, points, or travel miles every time you make a purchase. Some cards also offer sign-up bonuses when you spend a certain amount in the first few months.

These rewards are meant to encourage you to use the card more often. For example, you could earn 2% cash back on office supplies or double points on travel expenses. Some cards even let you earn rewards for referring a friend.

It's easy to see the value in these perks. But before you celebrate every point earned, it helps to understand how the IRS looks at them because not all rewards are treated the same when it comes to taxes.

What the IRS Says About Taxable Rewards

The IRS views credit card rewards in two different ways. Some are treated like a discount on what you bought, while others are seen as income and may be taxed.

If you earn rewards by spending money on your card, the IRS usually treats them as a rebate. This means you're getting some money back on a purchase, and that isn't considered taxable.

But things change when you receive rewards without making a purchase. For example, if you get a $500 sign-up bonus just for opening a card and not spending anything, that amount could be counted as income. In that case, the credit card company might even send you a 1099 form at the end of the year.

When Are Business Credit Card Rewards Taxable?

Some rewards cross the line from being a discount to being taxable income. The most common example is a sign-up bonus that isn't tied to spending. If a card gives you $200 just for opening an account, that money could be considered income, and you may have to report it on your taxes.

Referral rewards fall into the same category. If you get a cash reward or bonus points for referring someone to the card, and you don't have to spend money to earn it, the IRS may treat it as taxable income.

Another thing to watch for is how you use the rewards. If you use business-earned rewards for personal expenses, it can complicate your tax reporting and may raise red flags.

In some cases, your card issuer might send you a 1099-MISC form, especially if the total value of your non-purchase-related rewards is $600 or more. That's a strong sign that the IRS expects you to treat those rewards as income.

When Are Business Credit Card Rewards Not Taxable?

Most business credit card rewards are not taxable because they're earned through spending. The IRS usually sees these rewards as a rebate or discount on the purchase you made.

For example, if you spend $1,000 on office supplies and earn $20 cash back, that $20 is considered a price reduction, not income. The same goes for points or miles earned on regular business expenses. You're being rewarded for spending, so there's no tax owed in most cases.

Using these rewards to pay for more business-related expenses also keeps things simple. There's no need to report them as income if they came from spending on your business.

How to Stay Compliant and Make the Most of Your Rewards

The best way to avoid tax problems is to keep track of how you earn and use your rewards. Make note of bonuses that don't require spending since those might need to be reported. Keep business and personal spending separate to avoid confusion later.

Plus, you also need to talk to a tax professional. They can look at your specific situation and guide you on what to report. Don't wait until tax season to figure it out. You should also use your rewards wisely. Put them back into your business, like paying for supplies or travel that helps your company grow. This way, you stay organized and get real value from your credit card without running into tax trouble.

Final Thoughts

Business credit card rewards can be a smart way to stretch your spending, but it's important to understand how they affect your taxes. Most rewards earned through spending aren't taxable, but bonuses and referral perks might be.

You can't deduct your full credit card payment on your taxes, but you can deduct the business-related expenses tied to that card. This includes things like purchases for your business, interest (if the card is used only for business), and some fees. The key is to stay organized and keep clear records.

A good business credit card helps you track spending, build credit, and unlock deductions that lower your tax bill. Let Fund&Grow help you access the capital you need while keeping your finances in order. We make it easier to separate personal and business expenses, qualify for business credit cards, and grow your business with confidence at tax time and beyond. Contact us now to get started!

Disclaimer:

This article is for informational purposes only and does not constitute legal, tax, or financial advice. Always consult a certified tax professional or accountant to understand how tax laws apply to your specific situation.

Frequently Asked Questions

1. Do you pay taxes on business credit card rewards?

It depends on how the rewards were earned. If the rewards came from spending on your card, they're usually treated as a discount and not taxed. But if you received a bonus or reward without making a purchase, like a sign-up bonus or referral reward, it may be considered taxable income.

2. Can you use business credit card rewards for personal use?

You can, but it's not always a good idea. Mixing business rewards with personal expenses can make tax reporting harder and may lead to issues if you're ever audited. It's best to keep business rewards for business use to stay organized and avoid problems.

3. Do I have to report credit card rewards on my taxes?

You don't have to report most rewards earned through spending. But you may need to report cash bonuses or other perks that weren't tied to a purchase. If your card issuer sends you a 1099-MISC form, that's a sign the IRS considers those rewards taxable.

4. Is cashback taxable for business?

Cashback earned from business spending is usually not taxable. The IRS sees it as a price reduction on your purchases. But if the cashback was given without a purchase, you may need to report it as income.

About the Author:

Ari Page is the Founder and CEO of Fund&Grow, helping entrepreneurs, investors, and small business owners secure up-to $250,000 in 0% interest business credit cards. Since 2007, he has grown Fund&Grow into an Inc. 5000 company, securing nearly $2 billion in business credit cards for thousands of clients. With 6,000+ 4.9-star reviews and an A+ BBB rating, Fund&Grow is a trusted leader in business funding. Ari is also the author of Fund&Grow: Easy & Affordable Ways to Get Money for Your Business and a passionate advocate for mindset, success, and the Law of Attraction. He lives in Spring Hill, FL, inspiring others to grow their businesses and achieve financial freedom.