Are MS Gains Taxable?

Gabe870

Level 2 Member
I've heard many differing opinions on this front.
I'm hoping that as a forum we can arrive at some informed consensus.

I understand that there is some disagreement on what counts as a "rebate" in the eyes of the IRS.

What are your opinions?
 

DanT

Level 2 Member
The IRS generally views awards given as a result of a purchase to be a rebate and not taxable income. A reward earned from a checking account is generally considered taxable income because nothing was purchased. I do not believe there has ever been any official guidance from the IRS. There is I think a private letter ruling that addresses the subject to some degree but a PLR is technically only applicable to the case for which it was issued but people often rely on them because it gives a good indication of IRS thinking on a particular subject. This post does not constitute tax advice. Please consult with your accountant regarding the tax implications of MS activities.
 
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Gabe870

Level 2 Member
The IRS generally views awards given as a result of a purchase to be a rebate and not taxable income. A reward earned from a checking account is generally considered taxable income because nothing was purchased. I do not believe there has ever been any official guidance from the IRS. There is I think a private letter ruling that addresses the subject to some degree but a PLR is technically only applicable to the case for which it was issued but people often rely on them because it gives a good indication of IRS thinking on a particular subject. This post does not constitute tax advice. Please consult with your accountant regarding the tax implications of MS activities.
Interesting point about the Private Letter Ruling. previously, I have not heard much about PLRs.
I looked up the ruling, and it seems to be inline with what you said.

Here is the ruling if you wish to read it yourself.
 

Mountain Trader

Level 2 Member
In my opinion, which is worth no more than you pay me for it, most forms of MS are not taxable.

However, a large number of deposits may raise the question on what you did to get all that money. Thus it is vital to keep records so you can prove the answer to that question.

And remember, in civil tax cases, the burden of proof is on the taxpayer. The IRS can and has just thrown out a proposed increase in taxable income, in effect saying the the taxpayer 'prove we're wrong'.
 

Gabe870

Level 2 Member
In my opinion, which is worth no more than you pay me for it, most forms of MS are not taxable.

However, a large number of deposits may raise the question on what you did to get all that money. Thus it is vital to keep records so you can prove the answer to that question.

And remember, in civil tax cases, the burden of proof is on the taxpayer. The IRS can and has just thrown out a proposed increase in taxable income, in effect saying the the taxpayer 'prove we're wrong'.
That's a great point.
I've been keeping a spreadsheet of the location, date, and amount of each ms charge.
I've also been keeping receipts, but I don't have a great setup for organizing them.
How do you keep your receipts?
 

DanT

Level 2 Member
A valid concern although I would rate the risk of audit as probably being very small and an audit that would bring your MS activities to light even smaller. How would the IRS know about your MS activities,at least those that involve MOs, unless they asked to see your bank accounts? Obviously, if for some reason they did, you better have that proof to back up your deposit activity because it would most likely get ugly really fast. The IRS does do some random audits but they seem to like to go for low hanging fruit because their resources are limited. They typically target an area that seems to be a problem run a test program then expand it if they find a significant "hit rate".

Another risk is people who are generating points and cash back by reselling. If a 1099-K is issued then you are on the radar of the IRS for certain. Any profit you make is subject to taxation. You can offset it with any losses of course but the point being is you have to show all that activity on your tax return.

In my opinion, which is worth no more than you pay me for it, most forms of MS are not taxable.

However, a large number of deposits may raise the question on what you did to get all that money. Thus it is vital to keep records so you can prove the answer to that question.

And remember, in civil tax cases, the burden of proof is on the taxpayer. The IRS can and has just thrown out a proposed increase in taxable income, in effect saying the the taxpayer 'prove we're wrong'.
 

Mountain Trader

Level 2 Member
I can't speak to the likelihood of IRS questions. My understanding is that SARs are not intended for the IRS but who knows.

What I do is this: I put a small Post-it on each GC I buy with the date, place, amount and funding source (eg. Which credit card used) for the purchase. I also save the receipt for the purchase(s). When I offload the GC (eg. To Serve, a money order or whatever), I save the paperwork from that (eg. MO stub). Finally, if there's a bank deposit, I keep the bank-stamped deposit slip. Then I take all of this, folded up into the size of a GC, wrap a rubber band around it and date it using the offload date. This goes into an envelope for that month's MS activity.

With this system, I can show how any deposit was funded through the steps of my just moving my money from one place to another.

Reselling is a different matter entirely. I don't resell so I can't advise here but buying and selling things is often an activity that must be reported on a tax return of some kind, and there are also other factors such as sales tax which may come into play. I can't offer help, other than to suggest figuring out how this applies to anyone undertaking to do this.
 
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Gabe870

Level 2 Member
What I do is this: I put a small Post-it on each GC I buy with the date, place, amount and funding source (eg. Which credit card used) for the purchase. I also save the receipt for the purchase(s). When I offload the GC (eg. To Serve, a money order or whatever), I save the paperwork from that (eg. MO stub). Finally, if there's a bank deposit, I keep the bank-stamped deposit slip. Then I take all of this, folded up into the size of a GC, wrap a rubber band around it and date it using the offload date. This goes into an envelope for that month's MS activity.
I like the idea of monthly envelopes. I'm going to start doing this. So far, I just have two bins, one contains empty cards, the other contains full. They are attached to their receipts, but not terribly well.
I think I'll buy some envelopes and rubber bands next time I'm at the store.
 

Sesq

Level 2 Member
Reselling is definitely taxable. If you get miles/points as your profit margin it may not be income, but if you stack coupons or whatever and buy for $80 and sell for $90, you owe tax on the $10.
 

Gabe870

Level 2 Member
Reselling is definitely taxable. If you get miles/points as your profit margin it may not be income, but if you stack coupons or whatever and buy for $80 and sell for $90, you owe tax on the $10.
That is important to mention.
I personally stay away from reselling for that very reason.
 

Duffmankc

Level 2 Member
The IRS generally views awards given as a result of a purchase to be a rebate and not taxable income. A reward earned from a checking account is generally considered taxable income because nothing was purchased. I do not believe there has ever been any official guidance from the IRS. There is I think a private letter ruling that addresses the subject to some degree but a PLR is technically only applicable to the case for which it was issued but people often rely on them because it gives a good indication of IRS thinking on a particular subject. This post does not constitute tax advice. Please consult with your accountant regarding the tax implications of MS activities.
It may be a rebate, but that doesn't end the taxation question at that point. If you are purchasing a good, say a computer for instance, for $1,000 and get 5% cc rebate, your basis in that computer is $950 (1,000 x (100% - 5%)). It you turned around and sold it for anything more than $950 you would have a taxable gain. If you use it up until its breaks/is worthless/etc. there is nothing to worry about (unless you can still trick some poor sap into giving you more than the $950 for it at this point).
However, if you are MS'ign GCs or other cash equivalents the IRS could view it as not being any different. You are spending $1,000 on a GC and getting $1,050 in return (ignoring GC fees). Thus, you are $50 richer. Code Sec. 61 defines gross income as "all income from whatever source derived." It is a purposely broad definition because the government doesn't want to miss out on your tax dollars. Does anyone have an argument why having $1,050 moments after having $1,000 isn't income?
It is possible you could argue that the GC is a good and not cash/cash equivalent and thus your basis in the GC s/b $950. However, unless you then use the GC to purchase another good (say the $1,000 from the earlier example) to transfer your basis, converting that GC into cash (like transfering to Serve and then paying your CC bill) would likely be viewed the same as the sale of computer, generating the $50 gain.
Remember, the IRS isn't/wasn't familiar with MS (or considered it too small a population to address it) so it was assuming normal credit card purchases for good or services it the PLR.
Also, echoing one of the other posts in this thread, not only is it highly unlikely that you will get audited, it is even more unlikely the IRS would look at your CC transactions and ask about any rewards you've received. Thus, detection risk is low.
This post does not constitute tax advice. Please consult with your accountant regarding the tax implications of MS activities.
 

DanT

Level 2 Member
I disagree on the issue of basis. In theory, the IRS could make your argument and there is always a lurking fear that the IRS will try to tax points and miles but in short they don't currently. If you have a cash back card then yes I would agree that the basis should probably be reduced by the amount of the rebate because the company is receiving a cash reduction in the price paid no different than a mail in rebate.

What about points though? Who do the points belong to? The company could lay claim to them but often the employee gets to keep them. If anything one could argue that the employee, not the company, has a tax issue in that situation. Again, though the IRS seems to have chosen to look the other way probably because they fear the pitchforks and torches will come out if they stoop to taxing points and miles.

I would say that this would also apply to your example of MS'ing gift cards. The IRS simply is not interested in going after points and miles. They do not have the resources to go after what usually amounts to small potatoes. Also, another problem is how are they going to prove it? You have no obligation to keep records on most personal transactions. Why do you think states typically go after businesses and not individuals for sales taxes? Because businesses have to keep receipts to substantiate deductions on their tax returns.

Now if MS by some misfortune became widespread enough and involved enough dollars then it might become of interest to the IRS. Sort of like people selling stuff on EBay which was part of the reason for the 1099-K being born.

It may be a rebate, but that doesn't end the taxation question at that point. If you are purchasing a good, say a computer for instance, for $1,000 and get 5% cc rebate, your basis in that computer is $950 (1,000 x (100% - 5%)). It you turned around and sold it for anything more than $950 you would have a taxable gain. If you use it up until its breaks/is worthless/etc. there is nothing to worry about (unless you can still trick some poor sap into giving you more than the $950 for it at this point).
However, if you are MS'ign GCs or other cash equivalents the IRS could view it as not being any different. You are spending $1,000 on a GC and getting $1,050 in return (ignoring GC fees). Thus, you are $50 richer. Code Sec. 61 defines gross income as "all income from whatever source derived." It is a purposely broad definition because the government doesn't want to miss out on your tax dollars. Does anyone have an argument why having $1,050 moments after having $1,000 isn't income?
It is possible you could argue that the GC is a good and not cash/cash equivalent and thus your basis in the GC s/b $950. However, unless you then use the GC to purchase another good (say the $1,000 from the earlier example) to transfer your basis, converting that GC into cash (like transfering to Serve and then paying your CC bill) would likely be viewed the same as the sale of computer, generating the $50 gain.
Remember, the IRS isn't/wasn't familiar with MS (or considered it too small a population to address it) so it was assuming normal credit card purchases for good or services it the PLR.
Also, echoing one of the other posts in this thread, not only is it highly unlikely that you will get audited, it is even more unlikely the IRS would look at your CC transactions and ask about any rewards you've received. Thus, detection risk is low.
This post does not constitute tax advice. Please consult with your accountant regarding the tax implications of MS activities.
 

Voyaging Doc

Level 2 Member
TPG just posted this

http://thepointsguy [dot] com/2016/06/taxes-on-cash-back-rewards/

I think I have to disagree with what the author wrote. While a rebate might not not be considered income the cash you receive from a cashback site I think is reported as income by many 3rd party cashback sites, particularly if your cashback amount exceeds $600 in a fiscal year. The site will ask you for a W-9. What do you think?
 

BuddyFunJet

Level 2 Member
TPG just posted this

http://thepointsguy [dot] com/2016/06/taxes-on-cash-back-rewards/

I think I have to disagree with what the author wrote. While a rebate might not not be considered income the cash you receive from a cashback site I think is reported as income by many 3rd party cashback sites, particularly if your cashback amount exceeds $600 in a fiscal year. The site will ask you for a W-9. What do you think?
While not an accountant, I'm with DuffmanKC on basis.

While the cashback site may W-9 you, my view is that the cashback is a rebate that lowers basis rather than income. OTOH, it you then resell the item, profit may result.

That said, if the amount is small, I'd be inclined to follow the 1099 as income rather than get into a discussion with the IRS over 1099 matching. To me, I'd rather pay a few bucks extra in tax and avoid discussion. Once a conversation starts, it can head into a bad direction.
 

MickiSue

Level 2 Member
Supporter
I avoid a lot of this stuff with my reselling, by buying the bulk of my products from sites that are not linked to any portals. As I always buy on the basis of the gross ROI of the stated cost, then the rest doesn't affect it.

The only issue could be if I use a CB card for the purchase. 2% on $100--the IRS won't care. But 2% on $20K, they will. Even more with 2% on 100K. That's why it's important to keep track, not only of the purchase, but which card was made for the purchase.
 

Matt

Administrator
Staff member
I avoid a lot of this stuff with my reselling, by buying the bulk of my products from sites that are not linked to any portals. As I always buy on the basis of the gross ROI of the stated cost, then the rest doesn't affect it.
Declaring it as income and getting the portal bonus is better than avoiding it and getting a lump of coal. Income is super!
 

BuddyFunJet

Level 2 Member
Schedule C income also helps establish the operation as an actual business for cc application, financial review and expense deduction purposes.

For example, it's much better to be a professional gambler than a hobbyist since many more expenses/losses are deductible. Same holds in this game.
 

MickiSue

Level 2 Member
Supporter
Declaring it as income and getting the portal bonus is better than avoiding it and getting a lump of coal. Income is super!
I'm aware of that, Matt. But if I can find, routinely, items with gross ROI of 75%, VS combing BB for something that will drop to gross ROI of 5% when the lemmings start buying, why worry about the maybe 5% back I can get from going through the portal?

IF the place I am buying from has portal payouts, of course, I use them. But the places I usually shop for my business don't have them.
 

Matt

Administrator
Staff member
I'm aware of that, Matt. But if I can find, routinely, items with gross ROI of 75%, VS combing BB for something that will drop to gross ROI of 5% when the lemmings start buying, why worry about the maybe 5% back I can get from going through the portal?

IF the place I am buying from has portal payouts, of course, I use them. But the places I usually shop for my business don't have them.
You'll have to prove it by showing me the sites and products
 

LearnMS

Level 2 Member
I haven't received 1099-INT for

- insight prepaid account.
- PNC bank bonus.
- CB portals with checks < $30.

Should I include them anyway? I plan to wrap tax return this weekend.
 

Matt

Administrator
Staff member
I haven't received 1099-INT for

- insight prepaid account.
- PNC bank bonus.
- CB portals with checks < $30.

Should I include them anyway? I plan to wrap tax return this weekend.
I would include the first two for sure, the portal I'd probably say no to, but for $30 it's hardly going to break the bank if you play it safe and include it too.
 

Craig

Level 2 Member
What about gains from referrals? I saw that Chase issued (and subsequently rescinded) 1099s for anyone who had >$600 in referrals last year. Are referrals income or rebate in the case of both cash and points earned from referrals?
 

Matt

Administrator
Staff member
What about gains from referrals? I saw that Chase issued (and subsequently rescinded) 1099s for anyone who had >$600 in referrals last year. Are referrals income or rebate in the case of both cash and points earned from referrals?
Per my recent comments on the Podcast, things like this aren't black and white, I tend to declare things when in doubt. For me, I would be inclined declare cash referral as income, I'd be less inclined to do so with points.
 

Craig

Level 2 Member
Just wondering-how could cash for a referral not be taxable income?
The grey area to me is this: with American Express, BCP and BCE referrals reward the equivalent of statement credit dollars and constitute a "rebate" towards purchases I have already made. With Chase, they are really distributing Ultimate Rewards. If you have the CSR, CSP, or Ink, you can transfer UR to forms that are non-cash. If you only have the Freedom, I could see the argument for referrals to be 1099d, but effectively you are receiving "points," not "cash" when you have the other products.
 

Mountain Trader

Level 2 Member
The grey area to me is this: with American Express, BCP and BCE referrals reward the equivalent of statement credit dollars and constitute a "rebate" towards purchases I have already made. With Chase, they are really distributing Ultimate Rewards. If you have the CSR, CSP, or Ink, you can transfer UR to forms that are non-cash. If you only have the Freedom, I could see the argument for referrals to be 1099d, but effectively you are receiving "points," not "cash" when you have the other products.
What happens to the Amex, BCP and BCE referrals payment if you have no balance due?

I'd love to lean another way on this but hard to see how a payment in cash (or a credit thereof) in exchange for performing a service (bringing in an outside customer) is not taxable income under Sec. 61. If Chase gives you UR, maybe that's different-maybe not. Cash has no valuation issues, however.
 

Craig

Level 2 Member
What happens to the Amex, BCP and BCE referrals payment if you have no balance due?

I'd love to lean another way on this but hard to see how a payment in cash (or a credit thereof) in exchange for performing a service (bringing in an outside customer) is not taxable income under Sec. 61. If Chase gives you UR, maybe that's different-maybe not. Cash has no valuation issues, however.
In my case, if I have no balance due I submit for a statement credit and transfer that positive balance to another AMEX account, which normally takes a few days to complete. Reward Dollars are not Dollars, they are Reward Dollars, and as such have limitation on their use. At least that is my untrained argument.
 

LearnMS

Level 2 Member
I would include the first two for sure, the portal I'd probably say no to, but for $30 it's hardly going to break the bank if you play it safe and include it too.
I randomly read an article that PNC bonus is non-taxable if it is < $600. So I did not include it. But given the risk, I will include it now even though I haven't received the 1099-INT document. Good approach? Same thing with Insight
 

Matt

Administrator
Staff member
I randomly read an article that PNC bonus is non-taxable if it is < $600. So I did not include it. But given the risk, I will include it now even though I haven't received the 1099-INT document. Good approach? Same thing with Insight
Not a good approach. A 1099 doesn't mean something is taxable or not, it is just issued at a certain threshold. You should declare it.
 

Seeme

Level 2 Member
It seems like it would really depend on the type of MS... selling giftcards for more then you paid? Taxable. Selling giftcards for what you paid/a loss, but earning credit card points? Not taxable. All rewards points are considered rebates I believe.

I've been wondering if you sell gift cards at a loss of a a few dollars (while still profiting with points and other rebates) would you be able to write those off as a loss?
 
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