Well it’s tax season and you might already be thinking about what you owe, how much you owe and if this hobby of yours is worth it. Well it is. And here is some info on what will get taxed and what is just free money that Uncle Sam cannot get it’s hands on.
Cash Back on Credit Cards
No tax liability. Credit card rewards programs that offer cash back or points that can be applied toward future purchases (ex. Wells Fargo Visa Card)are considered rebates or discounts rather than income, and therefore carry no tax liability. About a half of my hobby’s earnings in 2014 probably fall on this category so that is good news.
Reward Miles on Credit Cards
No tax liability. Rewards earned as a result of making purchases or fulfilling a spending requirement with a credit or debit card are not subject to taxes. I think this makes up about a third of my earnings in 2014.
Bank Account Sign Up Bonuses
Taxed. When you receive a gift for opening a bank account, like that $250 from Astoria Bank that i received in November, the value of that gift is generally treated as income and subject to tax reporting. The same thing goes for interest earned from these accounts, be it that measly 0.1% or maybe that 6% on your Mango Savings.
You will get a 1099 from your bank that details your reward payout, that’s a good sign that you owe taxes on that income. So don;t throw those envelopes out, even if you have closed that bank account months ago.