Cash Back Rewards

[Securenym.net]

Adrien, 

This is how I deal with the question, too.  This includes “manufacturer" rebates at the point of sale.  My state taxes the entire selling price at the marked value, not at the discount after the “instant manufacturer’s rebate” price.  I handle it exactly as you do, then transfer the rebate to the appropriate account when the funds are used, either to reduce the balance of the credit card, or more recently to transfer to savings/brokerage for future investments.  

On how to handle this in the US, the US IRS issued a private letter ruling in 2010 which may shed some light on this.  (See IRS PLR 201027015 Dated 4/5/2010, Index 170.01-00).  While this letter is aimed at providing clarification of using rebates for charitable contributions, the IRS also clarifies just how it handles a rebate:

P.3, Law and Analysis:  “Section 61 provides that gross income means all income from whatever source derived.  A rebate by a buyer from a party to whom the buyer directly or indirectly paid the purchase price for an item is an adjustment in purchase price, not an accession to wealth and is not included in the buyer’s gross income.”    

P.5, Conclusions: (1) “The portion of the credit card purchases the tTaxpayers can either receive back in cash or request Company to pay dot a charity does not constitute gross income to Taxpayers under section 61.”

A private letter ruling means it may not apply generally, but it gives us an idea of what the IRS thinks.  In this case it doesn’t think credit card rebates are income.  Therefore, I think these rebates (at least in the US) are best classified as assets, rather than income, and that is how I do it.

What the PLR is silent on, is what is the status of third party rebates.  i.e. if I purchase a device for $X and a third party interested in having me purchase the device offers a rebate of $Y, that third party not being related to the manufacturer/seller/credit company, does this philosophy still apply?  That I don’t know but will discuss with the tax lawyers when the opportunity arises.  

For credit cards, I think the answer is pretty clear.

Walt

> On Mar 17, 2017, at 12:44 PM, Adrien Monteleone <adrien.monteleone at gmail.com> wrote:
> 
> I guess this is a jurisdictional issue, but I would always think of any sort of rebate as a partial refund or discount that was applied or realized after the sale, not income. Income is not “everything that comes in.”
> 
> I book all credits and rebates to a pre-paid expenses asset account since they are non-cash assets that I can use for an actual expense later. If the rebate is a one-off refund for a particular purchase, I’ll book it against the original expense since it is most likely tied to it directly. If they are simply a balance reduction on a liability like a credit card, then I would think booking them to a Expenses:Rebates account like John does would make more sense.
> 
> For per-purchase rebates like the one described in the OP, one could also I suppose record all transactions with a split using a 'rebate due’ account and discounting the particular expenses directly, and then entering receipt of the rebate against the ‘rebate due’ account.
> 
>> On Mar 17, 2017, at 6:27 AM, gnucash-user-request at gnucash.org wrote:
>> 
>> From: George Riner <georgeriner at mycogeo.com <mailto:georgeriner at mycogeo.com>>
>> Subject: Re: Cash Back Rewards
>> Date: March 16, 2017 at 4:48:58 PM CDT
>> To: gnucash-user at gnucash.org <mailto:gnucash-user at gnucash.org>
>> 
>> 
>> I simply have a rebate account as an income account and whenever I buy something and use a rebate to pay for it that's when the rebate is recognized as income and I charge the expense to that account. 
>> 
>> So for instance, my Discover card builds up this cash rebate value - then when I buy something on Amazon and use my Discover card rebate, I book the computer part expense (for example) and pay for it with the Rebate acct. When I get an actual cash in my pocket rebate from something I just add to cash and I recognize it as rebate income. When I buy something that has a check from the manufacturer show up weeks or months later, when the check shows up I deposit it in my checking account and recognize it as rebate income. 
>> 
>> I don't bother tracking my current Discover card cash rebate balance, I only recognize it as income when I actually use it to buy something.
>> 
>> :George
>> -- -- --
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> 
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