How to record credit card Cash Rewards in QuickBooks Online? I currently also receive cash back Rewards from my Paypal checking debit card.

What if you are just using the points for something and you aren't getting a credit on the bill.  Do you need to account for using those?  If so, how?

@Rustler
Is Cashback Rewards a fully-taxable income?
Or is it treated as capital gain?
Does it matter how it is redeemed - Check, Credit to the account balance, etc?

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@EBFinancials wrote:

@Rustler
Is Cashback Rewards a fully-taxable income?
Or is it treated as capital gain?
Does it matter how it is redeemed - Check, Credit to the account balance, etc?

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A cash back reward is income when received, typically posted to other income

no it does not matter how you use it.  it buy a hoogalator on a bill

hoogalator, qty 4, $23 ea, total $92

other income, -$40

total due $52

@Rustler
Can you please explain what hoogalator on a bill means:

The problem is when my bank doing online download, the transaction is recorded as "transfer" and therefore I could not select "Income" type account for the transaction.

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@i12know wrote:

The problem is when my bank doing online download, the transaction is recorded as "transfer" and therefore I could not select "Income" type account for the transaction.

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And there in is the problem allowing the bank to make your entries for you, causes problems, this is just one of them

the work flow has always been, enter transactions, download banking, match

but the advertising makes download banking sound like utopia

I finally fixed the problem by:

@Rustler
How come it lowers income, logic tells it increases it?

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@EBFinancials wrote:

@Rustler
How come it lowers income, logic tells it increases it?

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the -40 I showed for income on the example of the bill, is telling QB to post a credit to income, a credit to income does increase income.

A bill posts a debit to all accounts listed by default, so the negative sign changes that to the opposite - a credit

@Rustler
So the -40 is the cashback portion of the transaction?
And the $52 is due since it is not in Accounts Payable?

@Rustler
In your bill example the two accounts impacted are:
Other income (Assets) - Increased by $40
Accounts Payable (Liabilities) - Increased by $52
There is no balance then at the two sides of the equation, please explain.

it is a check, the total charge is 92

I subtract 40, cash back rewards, and post to income

the balance is 52 and I pay it

@Rustler
So in terms of balancing the transaction it goes like:
Accounts Payable increased by $92
Other Income increased by $40
Payment account increased by $52
I understand the workflow you described in terms of the check/bill, however, I still don't understand what accounts are impacted and how the various numbers are posted in them

Hello there, @EBFinancials.

I'm here to share some information on how the  credit card Cash Rewards affects your transactions flows.

@Rustler is correct! In addition, when you create a bill or any expense transaction with the amount of $92, it will increased your Accounts Payables or expense account. Once you record a payment for $52, it will be posted to the Deposit To account you selected.

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.

Fill me in if you have other questions about recording your transactions. I’m always here to help.

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@IamjuViel wrote:

@Rustler is correct!Once you record a payment for $52, it will be posted to the Deposit To account you selected.

What part of write a check, make a payment, do you think means you deposit the money???

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@Rustler

You are saying that the payment should be recorded/posted into Deposit To account only when it is actually paid, rather than when the bill/check is generated?

you do not track rewards as you accumulate them

you use them against a purchase, that is when they become income as I showed

enter a bill to be paid later, use the rewards

write a check for an over the counter purchase, use the rewards on the check in QB

why are you paying tax on it? It should be an expense account?

I have been following this thread and I disagree with how you folks are accounting for a credit card cash-back reward. If this is based on spending (as opposed to a referral benefit or for opening a new card), then the cash back is actually a rebate or discount on your expenses. It is NOT taxable income and so should not be an income account. Instead its a negative expense.

At the moment I have it as a miscellaneous expense and then my P&L shows a negative miscellaneous expense under "other expenses". I'm not sure if this is right, but I know its not company revenue or income.

Hi all. DavidH2 is correct. Cash back rewards that are based on purchases should be counted as discounts/adjustments to the purchase price - not as income. The IRS has addressed this exact question and is very clear about it:

"A rebate received by a buyer from the 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 includible in the buyer’s gross income."

If your purchases are business expenses that are fully deductible, then in most cases it won't impact your tax liability. For example: $100 expense with a $5 cash back reward will still result in -$95 net income whether you record it as $5 income / $100 expense or $0 income / $95 expense. However, the correct way to record cash back rewards is a contra-expense. Booking it as income artificially inflates your income statement.

If, however, you receive a cash bonus or reward that is not linked to purchases, e.g., an unconditional sign-up bonus, you should report that as miscellaneous income. You may even receive a 1099-MISC from the bank or institution that gave you the rebate in that case.

Thanks,

Joe

So I'm still not clear how I enter a contra expense. I tried entering an expense as a negative but it wouldn't take that. I'm trying to enter cash back rewards used on a credit card.