Sage 100

I have a customer that uses credit cards extensively for their monthly expenses. They get points (as we all do!!) for their charges and now they have cashed in some points or received 'cash reward rebates' as payment on their account. How do I account for that 'payment'. Is it taxable (meaning do I credit the amount to some GL Exp Account), it certainly isn't a payment to come from their checking. We are talking a $5k - $10k rebate/payment so it's not really small potatoes either and they have 8-10 credit card accounts so this will be a sizeable number when done with all accounts. Sage 100 4.50. Thanks

I think you would need to have them check with their CPA to determine if it is taxable or not. in Sage 100 I would treat it like a discount and either enter it in cash receipts entry (if they are getting a cash payment) or if they are applying it to open invoices I would handle it through A/P and use the discount field or enter a credit memo and apply it directly to a GL account.

Thanks, sounds like a plan. It is being used directly against the credit card, so when I record the actual payment, I'll add the discount in too.

Seems to me that whether you credit an expense and credit a revenue it's going to affect tax. Whether there's a sales or use tax issue will depend on the State they're in. I'm wondering if you would treat the rebate the same way the company treats vendor discounts. Some companies have a separate vendor discount account and show expenses at their gross amount and some companies record the expense net of the discount. It certainly would be easier to put in a separate credit card rebates account. Since it's a monthly rebate it doesn't seem that you would accrue it as a part of each transaction.

According to IRS announcements and other publications, rewards and discounts issued by credit card companies and frequent flyer miles are currently not considered taxable income. However such rewards and discounts can reduce the cost of a tax-deductible expense. Need to check with the customer's CPA to make sure they interpret it the same way.

@JohnHoyt - Agreed. See the section on Recoveries in IRS publication 525. http://www.irs.gov/pub/irs-pdf/p525.pdf

They actually are GIVING the rebate to the company????? Perhaps you should suggest that they take a trip to Hawaii by charging it to their CC which would be offset by the rebate credits......

I'm with @Jeff Schwenk on this one!

Unless you are their CPA - do not guide them on taxability. Refer them to the CPA then implement the CPA guidance. Why? If you are incorrect or in conflict with the CPA's advice your'e never going to hear the end of it. BTDT.

I agree with @WayneSchulz. Also, if you give incorrect advise, you could put yourself in a lawsuit position.

I to agree with @WayneSchulz is directing the client to their CPA for taxability guidance. Regarding how to record, I would record the full amount incurred from a vendor as an expense and then record as offset to a credit card incentive discount earned account as a type of revenue. The credit does not relieve the purchaser from sales tax liabilities on the purchase (or use tax if applicable). The discount is taxable for income taxes to the extent that it reduces the amount of the net expense incurred. Since we most likely all participate in some type of rebate or loyalty program with one or more credit card companies, we all have to deal with this to one extent or another. If your a small business owner like me it doesn't matter whether you use them for your personal benefit (vacation travel to Hawaii is a common use in the Slavin household) or to reduce your business expenses, the net result is the same; more money into your pocket at the end of the year.

Thanks everyone, appreciate the input.