Richmond Savers
  • Blog
  • Free Disney Trip Plan
  • Guides
  • Top Credit Cards
  • About
  • Contact

Our Favorite Credit Card Reward Tax Strategies

January 19, 2017 by Thomas Leave a Comment  The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone. See our disclosures for more info.

Open the #1 Travel Credit Card

Chase Sapphire PreferredThe Chase Sapphire Preferred is hands down our favorite credit card. The points are super valuable and flexible, with 13 transfer partners. Earn a 50,000 point bonus when you spend $4,000 in the first three months. $95 annual fee is waived the first year. INCREDIBLE deal!

CalculatorTwo things we love here at Richmond Savers are saving money (including on taxes) and optimizing credit card rewards. It turns out there is some great crossover between these two goals that allows you to maximize tax deductions and essentially stack tax savings with rewards, for even bigger savings come April.

This post will touch on the basics, but it’s part of a series of posts. So you may want to read the others for additional info. Here are links to the three supplementary articles:

  • Saving on Your Mortgage
  • Saving on Childcare
  • Stacking Rewards with a HSA (Health Savings Account)

Inherent Tax Advantages

Credit card rewards themselves are, in a sense, tax advantaged because they aren’t included as income on your tax return. Even in the case of cash-back rewards, they are considered “discounts” and thus aren’t taxable. So when you are able to earn those rewards on spending that is also tax free, the upside can be significant. In this post, we’ll take a look at some simple ways you can put this idea into practice.

Note: this post is meant to be a general summary of a few methods, but some of the details can become elaborate. The other posts in this series (which are linked to throughout this article) will go deeper into the math behind the strategies.

Paying Your Mortgage through Plastiq

If you’re taking advantage of the mortgage interest deduction, then you’re already reducing your taxable income. But you can save even more if you earn credit card rewards as a result of paying your mortgage through Plastiq. Plastiq charges fees for its service, so it’s commonly used with cards where you are meeting a minimum spend requirement to earn a large signup bonus. However, if you take advantage of a promotional rate, Plastiq can still help you save extra on a card which would earn you a flat 2-3 percent.

In one hypothetical example, we showed how to save $3,950 in one year using Plastiq and the mortgage interest deduction.

Paying Student Loans with Plastiq

Using the logic above, you can do the same thing with student loan interest. The only catch is that there is a maximum of $2,500 that you can deduct, and an income limit for who can qualify. Still, this is a good opportunity for some additional savings.

Paying for Childcare and Using the Childcare Credit and/or an FSA

Childcare is a burdensome expense for many people, but tax benefits via the Childcare Tax Credit or a qualifying FSA often help. What helps even more, though, is using credit card rewards either with signup bonuses or high percentage ongoing earnings (such as 3 percent cash back). In our example, we showed how to save $2,538 on childcare using the Child and Dependent Care Tax Credit and cash-back rewards.

Healthcare costs with an HSA

Using an HSA is often a great way to make medical costs more manageable. Like with an FSA, you can pay for expenses with your credit card(s) to earn points and then reimburse yourself from the account. In our example, we showed how to save $2,678 with an HSA and credit card rewards.

Business Expenses

If you have a small business (even if it’s REALLY small), then you might be able to use tax and credit card strategies to save money and make your business more profitable. Because some credit cards offer really aggressive savings on business expenses (such as 5 percent back at office supply stores on the Ink Business Cash℠ Credit Card), there can be a “triple dip” effect here.

Charitable Contributions

If you want to give to a good cause, then why not earn even more funds from the transaction, so that you can give more later? Not all charities will accept credit cards, and you might want to make sure credit cards is one of their preferred donation methods and won’t incur significant fees.

But even the fees they incur can likely easily be offset by what you’ll earn. The most recent data I could find from the National Center for Charitable Statistics showed that in 2011 “the average charitable deduction per [tax] return was $1,201.” At the 25 percent tax bracket, you’ll save $300.25 at that donation amount. If you earn a high flat percentage back, such as with the Discover It Miles (3% the first year), you’ll save an additional ~$36. Or, if you used this donation to meet a minimum spend, you could save much more.

Bottom Line

As you can see, credit card rewards and taxes are interwoven. If you plan carefully and think about the tax implications of your spending behavior, chances are you can be more calculated with your rewards. This will allow you to make and/or save more money, and as we’ve shown this will give you the ability to be even more giving with your money as your finances grow.

Get Our Best Tips Sent to Your Inbox

We'll Help You Slash Your Budget and Travel for Free

Filed Under: Taxes

Take Your Family to Disney for Pennies on the Dollar!

We did it, and you can too. This guide will show you everything you need to know.

Want more help? We'll walk you through all the steps for free in our program called Keys to the Magic Kingdom Challenge. Join now here -- we're taking the first 500 families who sign up.

Leave a Reply Cancel reply

CommentLuv badgeShow more posts

Start Saving with Our Free Toolkit

We'll show you how to save an additional $2,000 this year with five simple tools.

Try Our Favorite FREE Money Management Tool

Track your net worth across all financial accounts, monitor cash flow, and analyze investment allocation and fees. Do all of this for FREE with this powerful tool.

Like Our Site? Then Like Us on Facebook, Too!

Like Our Site? Then Like Us on Facebook, Too!

Most Popular Articles:

  • Take your family to Disney World (nearly) for free: Step-by-Step Instructions
  • The Essential Rewards Credit Card: Chase Sapphire Preferred
  • AMEX Waives Annual Fees for all Active Duty Military Members
  • Booking with a Travel Agent: Save Big by Using the Right Credit Card

Get The Best of Richmond Savers Sent to Your Inbox

We'll Help You Slash Your Budget and Travel for Free

Disclaimers

This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program. RichmondSavers.com makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis. Richmond Savers does not include the entire universe of available financial or credit offers.

RichmondSavers.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Copyright © 2019 RichmondSavers.com | Privacy & Terms | Contact