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One of my credit cards gives me a cash back reward that I have credited to my account when it build up to a large enough amount. What account should I use for it, or is there a specific way to handle it in the ledger?

Currently I have it as Income:Other Inc, which doesn't seem quite right to me. Any suggestions?

  • 1
    It seems perfectly right. – base64 Sep 7 '16 at 10:03
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Like for anything with personal accounting, it kind of matters why you're tracking the information. If you're trying to have your accounting match what the tax authorities think about your income, you probably want to treat these payments the same way. In the United States in particular, taxability of credit card rebates and incentives is surprisingly not straightforwardly defined. See, for example, this blog post from TaxAct which describes some instances where it seems it may be seen as taxable in some cases, though it may just be seen as a rebate or discount (a "negative expense") in others. This is, if your credit card offers a 1% rebate on purchases, it can be treated as though just all your expenses are 1% lower, just as if the retailer had been running a 1% sale at the time, which would make the rebate not taxable.

One might even expect that if you, for instance, made a charitable donation by that credit card, if it's treated as a rebate, the amount that you could deduct for that donation would be 1% less, since that 1% isn't considered to be an amount you paid due to the rebate. I don't know as the IRS is expecting tracking to that degree, and I'm no tax law expert, but I could see a reasonable argument for it.

So, there are two main approaches to dealing with credit card rebates from a personal accounting perspective:

  1. Treat it as a negative expense. Either have a general Expenses:Credit Card Rebates category that you always transfer from, or go through all the effort to actually allocate your rebates to the appropriate category based on what you spent on the card, and have appropriate negative expenses in all those categories.
  2. Treat it as income. I, for example, use Income:Other Income:Credit Card Rebates, though you could categorize it as whatever kind of income you want. (Perhaps you don't care about the exact type of "Misc other income" and just want it in a generic "Other" category as you're currently doing, or perhaps you want to have a specific subaccount per card, to see how much you're earning in cash from each credit card.)

Essentially, the main thing to consider with any decision like this is "How do I want this to appear in any reports I look at?" Your books will balance no matter what account you assign to the rebate, so it's really just a matter of how fine-grained and detailed you want to keep track of things for your purposes, and if you want them to match whatever your taxing authorities choose for treating it. Or perhaps you want a mix, using "Income" for most things, but a negative "Expense" for those cases where you need to track it separately (such as where something like a charitable contribution may not be as deductible due to the rebate).

  • +1 I like the negative expense general category (because it's too much trouble otherwise) instead of calling it income because it's a more realistic depiction of what's happening. (It shouldn't be the case that your income increases when you spend more.) The exception to this would be credit card sign-up bonuses which probably should be considered other income, and they may be taxable too. – TTT Dec 28 '16 at 19:01
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If the cashback is true cash back, in other words either paid into a bank account or used to reduce your balance, then in terms of bookkeeping, it is and can be treated as income.

In that sense, it is similar to, for example, interest income on a savings account (which is also income).

You seem to be handling it exactly the way you should.

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I like to think of 'cash back rewards' as nothing more than a slight decrease in the amount of interest you're charged every month. In GNU Cash I track credit card interest separately and then apply any cash back rewards as a rebate to my expenses::interest::credit_card_interest account.

The only caveat here is that I 'claim' all cash back rewards immediately every month when making my monthly payment as there is no reason to roll it over and save rewards when you're paying 15%-23% on that liability in the first place.

I also argue against including it as other income in any way. You've done nothing to 'earn' this money other than borrow somebody else's money. In the end rewards are just an accounting trick by the credit card company to make it look like you're earning money when in reality you're just spending more of your own future earnings. Representing it as such in GNU cash plays into this narrative.

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