“Thank You” Awards Might Be Taxable

Remember the days when you signed up for a new checking account and the bank would “thank you” by giving you a duffel bag, toaster, or a football phone?  I bet you didn’t realize that these items may be considered taxable income.

In a recent tax court case, a taxpayer received “thank you” award points for opening up a bank account with Citibank that could be used toward an airline ticket .  The bank issued a Form 1099-MISC reporting $668 of income, which was the value of the ticket.  The taxpayer didn’t include the reported income on their tax return.

Because the award was given in exchange for depositing money in a bank account, the tax court held that it should be treated as interest income.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

A Few Tax Mistakes To Avoid

While taxes are complicated, there are some mistakes that are pretty easy to avoid. Keeping the following items in mind will help to keep you out of trouble with the IRS.

  1. Not filing a tax return because you can’t afford the tax.  Paying taxes on time and filing a tax return on time are two separate issues, and have separate penalties.  Even if you can’t afford to pay the tax due, you should still file a tax return.  On the flip side, you should still pay the tax due even if you can’t get your tax return done on time.
  2. Never ignore notices from the IRS or state agencies.  Some people think the first couple notices are just warnings.  Don’t take the wait and see approach.  They won’t forget about you or just move on to your neighbor if you ignore them.
  3. Don’t pay taxes with high interest credit cards.  This is better than not paying taxes at all, but always look for other financing options first.  You can even work out payment plans with the IRS and most states for relatively small fees and low interest.
  4. Avoid refund loans.  Wait just a couple weeks and that refund check will arrive.  With an electronically filed tax return and direct deposit, you could see your refund in as little as a week.  In general it takes a couple weeks, but it’s better to be patient than to pay the fees associated with these refund loans.
  5. Don’t assume your tax software is smarter than you.  It’s easy to go to the office supply store, buy that tax software and answer all the questions and input some numbers.  But always look through the tax return before pressing the “send” button.  The tax programs out there can be good, but they can’t anticipate everyone’s unique situation.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.