Deducting business expenses paid for by gift card

Question

Let's say I need to purchase a $1000 computer for my sole propietorship / side business. I can pay $1000 and deduct it on my schedule C, but what if I have the opportunity to pay $800 for a $1000 gift card, then purchase the computer with that gift card.

Can I deduct the purchase of that $800 gift card? I could also provide the proof that I spent the gift card on the computer.

See similar question: Using credit card points to pay for tax deductible business expenses

Thanks in advance

Answer 1

To quote the answer you linked to:

Perhaps the simplest way to think about this is you can only deduct an expense that you actually incur. In other words, the expense should show up on a bank or CC statement.

So, if your business purchased the $1000 gift card for $800, you should see a $800 charge appearing on a business CC or bank statement. You would therefore be able to deduct the $800, but not the full $1000 of items that you purchase with it.

Side Notes:

1. In general you should try to avoid having the business purchase gift cards to be used later for business expenses. This is because it's difficult to categorize the expenses properly unless you create a new account to track the gift card, or spend it all at once. If you use it to purchase multiple items in different expense categories, you need to track all those receipts separately and split the original gift card expense. It's even more difficult if you purchase the gift card at a discount; you would need to apply ratios to each purchase. ($500 for a printer and $500 for rental car becomes $400 for each if the gift card only cost $800.)
2. Theoretically, if you personally owned the gift card but wanted to use it for a business expense, you could purchase $1000 worth of merchandise on behalf of the business, submit the receipts, and get fully reimbursed by the business. This would make the full $1000 deductible by the business. However, if you personally only paid $800 for the gift card and was reimbursed $1000 for it, you should probably declare the $200 profit as personal income.