Mark J. Kohler breaks down the tax rules for airline miles and credit card points. Redeeming miles for travel isn't taxable, but sign-up bonuses count as income and may trigger a 1099. His strategy: pay for deductible business travel with a credit card, then use earned miles for personal trips.
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Hi, Mark Kohler here with an important tax and legal tip. Let's talk about redeeming airline miles, points and those rewards on credit cards. This can be a great tax strategy for you as an individual or a business owner. But it's important to understand the tax rules. First, the good news. When you redeem miles or points for any service or travel, there is no tax. No tax due. You're not going to get a 1099 and you don't have to claim it on your tax return. Thank you, irs. However, bonuses can be a different story. See, the IRS considers points or miles to be a discount. You therefore can redeem them for something similar with that credit card may offer. However, bonuses is money given to you to make a change, to sign up for a card or get rid of a card and move to another one, whatever. But that bonus is payment to you. There's a chance you could get a 1099 for that bonus. And if you do, you've got to claim that income. Now for business owners, rewards or bonuses could even be a little more tricky. Let's say you spend $10,000 on your credit card and you take a tax write off for buying something. But then the credit card company sends you a reward or a bonus of $200 for spending the 10,000. Well, you deducted the 10,000. What do you have to do with the 200? Well, don't be surprised if the credit card companies send you a 1099. You need to claim that income. You already wrote off the $10,000 and the $200 that you got as a discount would then be income if you took that entire write off. Now for you business owners, here's the strategy. If you're going to redeem miles, do it for personal travel because it's not deductible. But when you travel for business, let your credit card pay for that because that's business travel, 100% deductible. Then you redeem the miles for personal travel, which isn't deductible. That way you're using your money strategically. Now, one last final tip. Is it a great financial strategy, business strategy, tax strategy to build miles and points, rewards, bonuses? Sure, but we got to be careful. Getting into credit card debt is very dangerous. And especially as a business owner with the ups and downs of cash flow, we could dive into those rabbit holes of credit cards and building up points and get into problems in debt real quick. So be careful, be wise, and when necessary, and when things are tight, try to pay cash for your expenses. But when You've got the flexibility and the financial wherewithal. I think building up points and miles and bonuses and all that's great, but try to pay off those credit cards quickly and be careful. Anyway, hope that helps and Keep Living that American Dream. Thanks so much for watching and if you found that helpful, please look in the description below. I've got links to my tax and legal library, my QuickBooks training videos, how to start a small business 50, 60, 70 videos, some as long as 30 minutes, explaining more information on tax and legal strategies that will change your life. Also, if you'd like to subscribe to my newsletter or check out my social media links, please click here. There are weekly free tips and strategies and articles that you'll find extremely helpful and I would appreciate it if you'd subscribe to my channel. I've got so many videos here. I produce every week on my YouTube channel and I'd love to give you a ping every time I shoot a new video. Thanks so much and keep living the American dream.
