Tax Treatment of Non-Cash Bank Bonus

[scfr]

I'm considering opening an account at BBVA Compass for a Free Kindle Fire. I know the "cost to the bank" of the Kindle would need to be reported as interest income on my 2013 tax return.

Do I need to ask the bank for their cost at the time I open the account, or are they required to send a statement to me?

[MonkeyMama]

They would send you a 1099 next January. I doubt bank employees/tellers would have any idea.

IS there any reason you wouldn't consider getting the same reward through a credit card? Then it would be tax-free.

Incidentally, we got our first kindle, from a credit card reward. A few years ago. Surprise, surprise.

[kork13]

I have read some cases where cash (or non-cash equivalents) are treated as a refund of premium or fees. One possible restriction might be that you actually PAID premiums/fees. So for example, your home insurer gives you an ottoman as some strange form of housewarming gift... it could be considered a refund of premium. More common, of course, would be to see a cash bonus categorized as a refund of premium.

I believe this is also how credit cards can offer tax-free cash (and non-cash) rewards -- they're treated as refunded fees or interest payments.

[~bs]

They would send you a 1099 next January. I doubt bank employees/tellers would have any idea.

IS there any reason you wouldn't consider getting the same reward through a credit card? Then it would be tax-free.

Incidentally, we got our first kindle, from a credit card reward. A few years ago. Surprise, surprise.

You probably won't get a 1099 for it (but you might). Value is treated at fair market value (retail value). Whether you get one or not, you're supposed to report as income, same as if you had interest of less than $10, and the bank doesn't send you a 1099.

[scfr]

Sorry folks, I should have mentioned in my original post that before I posted here, I went to the IRS web site to see what I could find out. That is how I know that the "cost to the bank" of the Kindle must be reported as interest income. To me that sounds like what the bank paid for it, not what a typical consumer would pay, but I may be wrong. (Fair to assume that Amazon is giving the bank some sort of discount for purchasing in bulk and advertising the Kindle, isn't it?)

Yes, I know I need to report it whether or not I get a 1099, and I will. Any interest 50 cents or higher gets reported on my return (since I round off to the nearest dollar). Heck, I even reported my $6 jury duty pay and $91 survey rewards last year. That's just how I roll. Nice to know I'm not the only one.

I think I'll call the bank on Monday and see if anyone knows. I'll want to estimate the taxes owed before I decide whether or not to proceed.

Monkey Mama (aka Queen of the CC Rewards), you crack me up! I haven't seen a cc promo for a Kindle Fire. And no, I'm not one bit surprised that you got a Kindle that way! (I've only become seriously interested in getting a Kindle since they came out with the Fire.)

P.S. - For anyone interested, here's what I'm referencing from IRS Pub 550 (2012):
Gift for opening account. If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest.

For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. The value is determined by the cost to the financial institution.

[MonkeyMama]

@scfr - I am not aware of any kindle rewards at current (though they may be out there), but seems it is easy enough to get a $400 cash (or Amazon gift card) reward these days (which should more than cover it). Chase Sapphire and Citi Thank You are the big ones. I admittedly haven't looked at them recently so don't know what's being offered right this second.

[MonkeyMama]

You probably won't get a 1099 for it (but you might). Value is treated at fair market value (retail value). Whether you get one or not, you're supposed to report as income, same as if you had interest of less than $10, and the bank doesn't send you a 1099.

I think you are answering the OP's question, but am a little confused since you quoted my text. The above statement is true for rewards from savings institutions - is treated as interest income. Credit card rewards however are tax-free (treated more like refunds or rebates, as kork mentioned). Just to clarify if you were responding to my comment.

[~bs]

^

Sorry, I was replying to the OP's situation.

Also note that credit card rewards aren't always tax free. If the purchases are made for business purposes, then they are taxable. Like you said, treated as refunds/rebates, which is an offset to expenses. $10,000 purchase with a 1% credit card would equate to a 9,900 net expense.

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The value is determined by the cost to the financial institution.

My assumption was that the information wouldn't be readily available, in which case you would likely use the retail value.

[MonkeyMama]

No problem - I am very guilty of doing the same (quoting text and forgetting to say why - ha!)