Cheat Sheet Q&A:
The question: Are cash back bonus awards considered taxable income?
I have and enjoy a rewards card but am concerned that the "reward" is taxable. Being paranoid, I have always reported the reward as taxable other income line 21. If correct, I suspect many people over look this.
Bottom Line: I’ve got good news and not so good news. The good news is that generally speaking cash back bonus rewards are not taxable events according to the IRS. Instead the rewards are considered “purchase price reduction” rather than other income – even if you don’t generally pay interest on your credit card. There are certain situations where rewards could be considered taxable income.
If you use a credit card for purchases you are reimbursed for (this is typically something that occurs if you use a card for business purposes) you do have to report the rewards as other income. If you have specific questions about your own tax situation it may be best to consult a tax preparations professional you trust or reach out to the IRS for clarification.
If you have a topic or question you’d like me to address email me: firstname.lastname@example.org
The best credit card reward programs right now:
Bottom Line: So on back of today’s Q&A I was interested in seeking out the best credit card reward programs currently available. Credit.com recently put out a comparative analysis of credit card reward programs highlighting the three best cards for rewards. What’s interesting is that their top two selections were also the best programs I recently identified through my own research (I wanted to make sure I hadn’t missed any card programs in my analysis). Here are the results of their and my recent analysis:
- Fidelity Investment Rewards American Express
Reward: 2% cash back on all purchases with no limit and no annual fees. You do have to open a Fidelity account for the money to be deposited into in $50 increments.
Best Visa or MasterCard rewards program:
- Capital One Quicksilver Cash Rewards card:
Reward: 1.5% cash back on all purchases with no annual fee and no limits.
Ashley and I strategically use credit card reward programs. I recently switched our primary MasterCard over to this Quicksilver card once this program was announced. By using credit cards with extensive cash back rewards (and paying them off every month) you may find that you’ll improve your credit and have hundreds off dollars in extra rewards per year (or even more).
New technology that is sure to be a hit with credit card safety:
Bottom Line: One more credit/debit card related story before we leave the topic today… There’s a new app that is about to be released which could revolutionize credit and debit card security. That may sound like a stretch but consider this…
The new app is OnDot CardControl. Here what it can do:
- The app will allow you to enter all of your credit and debit card numbers into the app
- The app then allows you to control the use of the card completely
- You can turn the card on when you want to use it (with a simple on of option in the app, a la airplane mode for example) and off when you’re not using it
- You can limit where the card can be used by geography
- You can limit how much can be charged on the card before it won’t accept additional charges
Pretty ingenious right? This would virtually guarantee that even if your numbers had been compromised you wouldn’t have to worry about illegal transactions occurring. Just turn on the card just before your purchase and turn it off right after. This also is a way to ensure your kids don’t over spend on a card if you want them to have access to one.
Here is the direct link to the site for this new app: http://www.ondotsystems.com/
E-Cig regs are coming but in the meantime you can play a role in what they will be:
Bottom Line: The E-Cig industry is about to be fully regulated by the FDA. Yesterday the FDA released their proposed regs for the trendy vapor based smoking habit. Rarely have I seen an industry respond as positively as the tobacco\ecig industry did when this news hit yesterday. Here are the proposed regs:
- Sales to minors will be prohibited (same as traditional cigarettes)
- Advertising will be restricted in mediums that are determined to be aimed towards minors (same as traditional cigs)
- Sales in vending machines will be banned in areas that are accessible to minors (same as traditional cigs)
- All of the ingredients will have to be disclosed (same as traditional cigarettes)
So why is the industry so happy?
- Online sales will be allowed
- Flavored ecigs are being allowed
Starting today there is a 75 day “public comment” period for you to make your voice heard if you’d like to comment: http://www.fda.gov/TobaccoProducts/Labeling/ucm388395.htm
What's a dollar really worth?
Bottom Line: I’m always trying to think of new ways to encourage people, especially young people to learn the value of money, saving and investing. I was recently asked about a way to try to encourage kids to take an interest. Here’s what I came up with. The time value of a dollar. Literally a dollar (per day).
Through the power of time and compound interest, a dollar is never worth a dollar. It’s always worth much more. The average stock market return is 9% per year. So a dollar per day saved and invested isn’t worth $365 per year. It’s actually worth:
- $383 in the first year
- $2,311 in five years
- $5,930 in ten years
- $34,356 in 25 years
- $357,597 in 50 years!
You’ll know what the best time frame and way to present this to your kids is to have the biggest impact. Here is a compound interest calculator you can use if you want to do your own calculations: http://www.moneychimp.com/calculator/compound_interest_calculator.htm