Tax-Free Cash Rewards From Credit Cards

Whenever I speak to an organization if I mention you can travel for free or get $10,000 or more per year tax-free, I am always asked to come back and speak again on this single topic. It is incredible how many people either don’t know or don’t use on a regular basis what I am about to reveal. I am talking about tax-free money just for the asking and every kind of free travel imaginable.

A lot of people opt for the travel benefits because they enjoy traveling and the benefits are usually worth a bit more if used for travel. For me, cash is king. I like money, especially when I don’t have to report it as income.

Responsible adults should have no problem using credit cards to their advantage. We do NOT recommend carrying a balance on a credit card ever! The above statements about free travel and tax-free cash are available using credit cards and to a lesser extent debit cards. At the bottom of this post I will provide links to a list of credit cards with a variety of cash and travel bonuses.

Where Is the Tax-Free Money Hiding?

Before we begin I need to outline what is and is not taxable. Bank bonuses where you deposit money into a checking and/or savings account for a certain period of time for a bonus, say $250, IS taxable as interest income.

Credit cards are different. There are credit card companies willing to pay you hundreds of dollars to try their credit card. They require a certain level of spending within a certain period of time to earn the bonus. For example: a typical credit card bonus offer might read: “Spend $1,000 within 90 days of opening the account and get a $200 cash bonus. Spending $1,000 or more in the first 90 days will result in either a $200 check in the mail or a statement credit.” In either case the reward is tax-free because the IRS considers it a rebate or return of your own money.

Other cards offer travel points instead of cash and some cards give you a choice. The hard part is keeping up with all the offers. Business owners can get cards that require as much as $10,000 in spending in the first 90 days for bonuses of $1,000 or higher. (I recently received an office for $8,000 in cash rewards for $500,000 in first year annual spend.) You can have more than one credit card from multiple issuers too. Virtually all these cards also issue points in addition to the bonus on spending needed to reach the bonus.

Planning Tip

Major purchases should always involve a new credit card with bonuses. Take a personal example. A few years back I had to install a new septic system on my farm called a mound system. These wonderful investments cost in the ballpark of $15,000. I used a variety of credit card tactics to cover over $5,000 of the cost with bonuses. Some credit card offers actually pay a bonus of $200 for $500 of spending, a 40% reward. You also get 1% or more cash-back on the spending in addition to the bonus. See where I am going. Travel rewards are awesome, but daily expenses really add up to significant tax-free cash rewards.

A furniture purchase can be coordinated with a new credit card with a bonus for a major price reduction. Mrs. Accountant also gets a card in her name to double the rewards. There are instances where the reward exceeds the spending when you satisfy high spend requirements by purchasing gift cards and reselling them. (Use the link and get a $5 coupon to buy gift cards with.)

Businesses have it even better. As an accountant there is no shortage of ways to earn cash-back rewards. A new credit card offer requiring $5,000 of spending within 90 days of opening the account is not an issue. Normal business spending may already put me over the top. If not, there are things the business needs I can buy in advance. My accounting office always uses postage and office supplies. I can top out a card at the post office or Amazon to reach the required spending to earn the bonus reward. Postage and office supplies never goes to waste in my office.

Maximizing Benefits

People often underestimate the benefits credit cards offer. Running every possible household expense through the credit card and paying in full each month makes managing your money easier at tax time since you have a neat record all in one place. The extra advantage of rewards means you get paid for the convenience! Having more than one credit card to harvest several cash bonuses can add $10,000 or more to your annual income tax-free. Landlords and business owners have an advantage, but even a single-person household can use credit cards to shore up the budget.

Purchases made with a credit card also have certain protections. Read the fine print included with your card or online. Many credit cards offer extended warranties people forget to use; free auto insurance on a rental cars; replacement or money back if an item is stolen or broken. The list gets really long. Read the list of benefits. Many times the saving, especially if traveling, is worth more than the massive cash and travel bonuses. Know and take advantage of all the stuff you are getting and life is richer.

You can even charge mortgage payments, rent, and even utility bills to your credit card to reach spending requirements. The fees (verify this is the case in your situation) are less than the value of the points earned on the credit card so you get paid to do these things. The more you can charge to your card the easier it is to automate your financial life. All expenses can run through the credit card for maximum benefits and then have the bank pay the credit card in full on the due date automatically from your checking or savings account.

Choosing the Right Card

There are so many choices it can make it hard to start. If you are just beginning I recommend starting small. There are several cards that offer a $100 cash bonus after $500 of spending within 90 days of opening the account. I think every reader here has $500 of possible credit card spending to reach the bonus payout without spending for the sake of spending. If you have higher normal spending you can review cards with higher bonuses.

Business cards generally have some of the best cash deals. I have never seen a limit on how small a business could be. A hobby where you sell some stuff or a rental property would qualify you for most bonus cards as long as your credit qualifies you.

There are a variety of travel rewards programs. Airlines and hotels frequently co-brand with banks. Your preferred airline, hotel, or rental car company may have a co-branded credit card with excellent bonuses and continuing benefits. Having the right mix of co-branded credit cards can quickly turn into free or very cheap travel for the family.

Credit Scores

All this knowledge can bring plenty of free travel and tax-free cash. What you should not do is go crazy and apply for eight bonus credit cards in an afternoon. Before you reach five your credit score will have dropped enough to get you declined. Spread it out. Be strategic. Some credit cards offer 5% cash-back on purchases at certain stores. Pick a card that maximizes your benefits based on your normal spending patterns.  A modest amount of planning will yield the greatest return on your normal spending. One or two new credit cards should do the trick to get started. A few additions to round out your tax-free cash and travel plans can take place over the next several months.

Fees

Before I give you a few links to start on your way I want to discuss fees. Annual fees are something I try to avoid. Many banks waive the annual fee the first year if they have one. I always ask if they will waive the fee in following years too. I actually keep one credit card with an annual fee: the IHG® Rewards Club Select Credit Card and the Capital One Spark® for business card. I pay $49 per year and get one free night per year with the IHG® card. It ends up being a fairly cheap hotel room. I also get points on spending to use for free hotel stays. The current bonus is probably different than mine was. It was still a good deal for me so I pay the annual fee.

One Super Credit Card Bonus

Recently Mrs. Accountant required cataract surgery. The cost was over $10,000 and not covered by insurance. What could I do?

I found a credit card that gave a $1,000 bonus for $10,000+ in spend in the first three months, plus they offered 2.5% cash back on expenses over $5,000. Well, the eye doctor would cover all bases with one charge. They have an annual fee after the first year so I will cancel the card before the anniversary date, keeping all the cash bonus rewards.

You can get the same card, and other high reward cards, here.

Let me know how much in rewards you are getting or if you see other really good offers out there.