Thanks for chiming in the conversation, LIJ.
I can add some insights in recording a cash back reward in QuickBooks Online.
There are different ways to record this transaction. One way is to use the Other Income account as mentioned by Rustler. Another option is to deposit the cash back reward using an expense account. You would have to use a positive amount on the transaction. Once you run the Profit and Loss report, the cash back transaction will show a negative amount.
Let me show you how:
Once done, run the Profit and Loss Detail report to see that the cash back reward transaction shows as a negative amount (refer to the second screenshot below).
That should help you enter the cash back reward. The sharing of ideas and solutions helps to make the Community such a wonderful place. Please let me know if you have other concerns. Have a good day!
Thanks for joining this conversation, theresa92556.
I'll add some details about the cash back rewards.
When selecting an account for the cash back reward, it would depend on what it is for and the type of your business industry. You can consult with your accountant to correctly track it in QuickBooks Online.
That information should get you back in order. I’d be glad to help if you have other questions while working in QuickBooks. Enjoy your day.
Why isn't a cashback reward a contra account for Interest Expense rather than an income account? I do not view these so-called rewards as income. Can someone explain that to me?
Hello there, BeTheDance.
Thanks for joining this thread.
As mentioned by my colleague, the accounts you selected for cash back depends on your industry type and what it is for.
Since there are different options to record cash back in QuickBooks Online (QBO), it would be best to seek advice from your accountant regarding this matter. They'll be able to provide a more detailed information about handling cash back.
If there's anything I can help you with, please leave me a reply below. I'm always here to help.
Thanks. So, I just did a little more digging, and I read this is as for virtually all normal use cases that Cash Back rewards are a contra-expense and not an income account:
Most credit card companies offer some form of reward program to market their card and build customer loyalty. Rewards come in a variety of forms including cash-back bonuses, gift cards or other merchandise, or airline frequent flier miles.
The Internal Revenue Service (IRS) has fairly clear guidelines about the taxability of reward programs as they pertain to personal use of credit cards. Rewards earned by making credit card purchases are considered by the IRS to be a form of rebate or a reduction in the price of the purchases made with the credit card. That’s great news for those saving their frequent flier miles for that family vacation, the new computer or gift card. These types of earned rewards are not taxable.
However, there are some situations where the IRS could view cash-back rewards, gift cards and merchandise reward programs as taxable income. Some banks and credit cards offer reward miles or points as an incentive or “sign-up bonus” for opening an account. If making a purchase is not required in order to use the points, then the points are generally considered to be taxable income. The point value is determined by the credit card company and should be contained somewhere in the fine print of the reward literature. If the value of those points exceeds $600, then the credit card company would be required to report that income to the IRS and will send those customers 1099-MISC forms.
If an employee uses his personal credit card to for a business related purchase and is subsequently reimbursed for that purchase by his employer, the IRS could consider the related cash-back reward to be taxable income. Likewise, if a business receives cash-back rewards or gift cards, then it should reduce the business deduction of the items purchased with the rewards credit card. If the rewards are earned by an employee of the business through the use of a corporate credit card, then the IRS would consider the value of the cash or gift cards to be taxable income to the employee.
In these situations, the employee should track the amount of gift cards and cash that they received during the year and report that amount on Line 21 of Form 1040 as other income."
Thank you BeTheDance
i have a construction Firm and i have a capitalOne reward are miles,
this is a Business credit card, i have more than $10K, i just purchase some air fares worth $3k how do it register this in order to be able to Rec? you said if i redeem more than 6k capital One probable is going to 1099 me! and than reporter to IRS, how can i handle this?
In the Chart of Ac Creating a negative Expenses acc, how do i do that? Remember this miles i am trying to use for personal not for business traveling, how do the PNL its going to report this?
any advice is greatly appreciated.
After mulling it over, and thinking what I found here was incorrect, I decided to use the Make Deposits window to book a deposit to the checking account that received the redemption, selecting the Bank Service Fees expense account as the source.
This shows up as a debit to the expense account balanced by an increase in the bank balance. Super simple.
This being QuickBooks, I have no idea what might have happened under the hood, but I believe at least that the result comports with IRS regulations concerning rewards points and cashback from credit cards, and certainly hits the accounts in understandable ways.
This is how I've done it. Rebate Rewards are set up as an expense and I park all bits of monies received there. Other Income must be identified and reported to our CPA and it may be swept up into and INCOME account, and therefore taxable. Rebates are not taxable income.
I'm struggling with this also and the answers here got too complicated for the question asked. I assume some or most people here have small to medium businesses, do their own accounting and see the accountant at the end of the year as myself. I have a CapitalOne Spark CC with 1% cashback on company (tangible/intangible) expenses and want to use the CB to reduce the debt which is not rocket science in any industry. The confusion lies between @Rustler's "other income" VALID explanation and @joeburr's IRS defining Contra Liability Accounts = discount vs other income. I found this QB article explaining Contra Accounts: https://quickbooks.intuit.com/ca/resources/pro-taxes/set-up-contra-accounts/ with no instructions on how to set up.
So does @Rustler's "Other Income" solution correct the "Discount" issue within QB with my scenario along with the topic question or is a Contra Liability journal entry necessary to document the (cashback) as a discount without using a negative expense account? I use QB desktop posting the rebate as Credit Card Refund/Credit, using CapitalOne Spark as "From/Vendor" also used to document bank service charges and interest expenses. BTW - Is 7300-Other Income suffice or does another "other income" account needed?
Thank you for shedding light on this situation. I figured it since cashback rewards were not business income, they shouldn't be coded as income. It is more of a discount/coupon due to a related purchase. Now cash bonuses would be income.
Thanks for this post. When I create the credit card credit, QBO creates a charge for the redeemed amount and then a credit. The statement reconciles if I only reconcile the credit and not the charge, but then I have an unreconciled item in my register. Please advise.
Let me share some insights with you about the Credit Card Credit, lizk1.
When recording Credit Card Credit in QuickBooks Online, you'll have to make sure that you choose the bank account that paid back the credit. Once you selected a credit card in the line item, both the payment and the charge have the Credit Card Credit.
To ensure that everything is correct, I recommend consulting an accountant.
Additionally, I've included an article that'll help match your QuickBooks account and bank statements: Reconcile an Account in QuickBooks Online.
Keep me posted if you have any other concerns about managing QuickBooks Online. This way, we'll be able to assist you.
Thank you. I fixed the issue. One more question-this is posting the cash back rewards as income. It's my understanding that this is not taxable income, rather it is a deduction from expenses. How does that work?
Ok so I have the points coming in as Cash Back Rewards and now how do I categorize the expense using the Cash Back Rewards Points, it will only allow me to use CC or Bank so how am I tying the expense to the Cash Back Rewards?
Now that I have the points coming in as Cash Back Rewards, how do I create an expense paid for with my Cash Back Rewards it only allows me to pick a CC or Bank for expense so how am I tying the expense to the Cash Back Rewards (other income) I created?
Hello there, @Shannsocal.
Once you receive a cashback for the purchases made on your credit card, you'll have to record it in QuickBooks. We can use the Credit card credit option by clicking the +New icon in QuickBooks.
Once done, you can start matching the Transfer with the credit. You can check this link for the steps: Categorize and match online bank transactions. It contains detailed information to match the amount deposited to your bank.
You can read through this article to learn more about managing your downloaded bank transactions: Setup bank rules to categorize online banking transactions in QuickBooks Online.
Fill me in if you have other questions about recording transactions. I'm always here to help. Take care!
I think the issue that most confuses people (or at least me) is when the bank credits your credit card with the cash back reward. The solution you pose is good except from everything I've read, a rebate is not income. So that puts us back at how to code it so that it is not considered income.
Did you ever get an answer on how to fix/set this up properly? My cash back rewards are applied as a credit to my credit card. I don't know how to set this up so that I'm not taxed on it as income.
Let me add some insights in recording a cash-back reward in QuickBooks Online (QBO), G I G Trucking Inc.
There are different ways to record this transaction in QBO. We can use the Other Income account as mentioned by Rustler on this thread. Here's how:
We can record the cash back rewards as Credit Card Credit. Some entrepreneurs use Other Income as the affected account. Though, you can create an income account specifically for cash back rewards. Let's create an income account. (Optional) by following the steps below:
Then, create a Credit Card Credit for cash back rewards. Here's how:
Another option is to deposit the cashback reward using an expense account. We'll need to use a positive amount on the transaction. Once you run the Profit and Loss report, the cashback transaction will show a negative amount. Let me show you how:
When selecting an account for the cash back reward, it would depend on what it is for and the type of your business industry. I'd recommend reaching out to your accountant to help you decide on the best route to take in recording the credit card Cash Rewards you've received and choosing the accounts impacted.
I'd like to know how you get on after trying the steps, as I want to ensure this is resolved for you. Feel free to reply to this post and I'll get back to you. Take care always.
Thank you. I've decided to go the expense account route. It seems to work fine. I set up an expense account called Credit Card Rewards under the Bank Charges & Fees account. When I ran the report it seems to work as I intended. Here's what I did...
I categorize the Credit Card Reward redemption under the sub-category Credit Card Rewards. QB automatically confirms the categorized item as a Credit Card Credit under Bank Charges & Fees/Credit Card Rewards. Here are a few screenshots...
Wasn't able to upload them separately. Hope you can see them :) Thanks again for your help.
This would be income-is. It definitely goers in the plus column.
Whatever it is you charged on the card or account would have been treated as a business expense.
The charge is in the minus column.
The cash back lowers that expense.
So while it is not "income", it reduces the business expense that previously reduced your income.
The charged item was a deduction minus the cash back.
A way to possibly avoid this is to use "points" or credit towards something else rather than cash or credit.
It depends on how the reward is received. If it is received as a result of using the card, the IRS views those as rebates and are not taxable incomes. Look at them as a reduction/"discounts" on your purchases.
However, if the reward is above $600 for which you will receive a 1099 form from the credit card provider, then yes that is taxable per the IRS. Some credit card providers issue a bonus for signing up for their cards and those bonuses are taxable incomes. Hope that helps and always reach out if you need any help with QuickBooks products or bookkeeping in general.
Moses - QuickBooks ProAdvisor