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Cash Back Rewards

BernieBBernieB Member Posts: 6

How should I handle cash back rewards from the credit card I use for my business? The cash back reward gets automatically applied to my balance, reducing what I owe. I don't want to chart it as Income. Should I create a new chart of account in the Assets or Equity section specifically for the cash back reward? Any other suggestions?

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Comments

  • MikegMikeg Member Posts: 995 ✭✭✭

    The IRS views cash back rewards as a reduction in expense associated with the purchase.
    Mike G, CPA

    edited April 3, 2019
  • CaroleCarole Member Posts: 2

    I understand that cash back rewards are considered as a reduction in expense associated with the purchase but, in my case, I receive 0.1% cash back every quarter on all payments made with my professional card. It would be too long to separate the total amount of cash back for every transaction. So, do you have any suggestions on how should I handle cash back rewards for my business? Journal Transactions? A new chart of account? Thank you in advance!

  • MikegMikeg Member Posts: 995 ✭✭✭

    Carole,
    I have a client that receives cash back rewards every quarter. It shows up as a credit on his statement. When that gets imported in, I put it as a refund of an expense. Since the bulk of his credit card charges are for job costs, that's where I put it. I would choose the account where you typically charge the most. In the end, it really doesn't matter whether you want to show it as other income, or reduce several expenses or just one.
    Mike G, CPA
    www.mgfinancial.net

    edited April 3, 2019
  • MerlinAccounts_UKMerlinAccounts_UK Member Posts: 177 ✭✭✭

    Is the credit card a personal card that you have opted to use to pay business costs? I'd be inclined to suggest that the cashback in that situation would be a non business income and therefore (at least in the UK anyway) not taxable. I can't say how the IRS would view it however being a UK advisor.

  • CaroleCarole Member Posts: 2

    MerlinAccounts_UK,
    The credit card I always use for business purchases is my professional card only, not my personal card. I do as Mikeg suggested, I will put it as a refund of an expense on the account where I charge the most. Thanks for the help!

  • JigarJigar Member Posts: 8

    @Carole ,
    I had the similar issue and here is what I did.
    I created one account under Operating Expenses. I gave it a name "Credit Card Charges & Interest".
    Whenever there is a cash back in the statement, I add and income to my credit card and set the category to "Refund for Credit Card Charges & Interest". This will show a clean Profit and Loss report with negative value under "Credit Card Charges & Interest" Expense. If you pay annual fees or any interest for the credit card, you can also add that as an expense under the same category.

    Hope it helps.

    edited April 23, 2020
  • Kristian_GKristian_G Member Posts: 56 admin

    Hi @Jigar,

    Thanks for the great recommendation! Big plus one to handling cash back rewards in this manner, or as @Mikeg suggested above.

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