Is it worth spending business card rewards on yourself? – creditcards.com

If you are a small business owner with a business rewards card in your wallet, you have a choice: reinvest the rewards in your business or spend that big pile of points on numero uno.

You can use your business rewards to fly to a conference in Chicago, or you can use cash to pay for this trip (get a tax deduction) and earn your miles for a beach holiday in the Bahamas.

Whichever route you choose, it’s wise to weigh the pros and cons of each option and make an informed decision. Thinking about the best way to use your business rewards can help you get the most out of your business expenses, prevent tax confusion, and avoid squabbling with a business partner over points sharing.

Option #1: Reinvest rewards in business

Best of all, if you prefer to do everything by the rules, your best bet is to invest all the rewards you receive from business cards back into your company.

“Reinvesting business credit card points into a business is a very sound business practice,” says CPA Ravi Ramnarain, who works with entrepreneurs and small businesses.

This treatment of business awards has several major advantages over spending business awards on personal benefits, as it allows you to:

• Separate business and personal expenses. Most small business owners know they shouldn’t mix business and personal money. This best practice allows you to keep accurate tax records, avoid audit disasters, and possibly protect your personal assets if you are sued. It’s also best to avoid using business rewards personally, says Justin Goodbred, business strategist and certified financial planner. “Business must remain completely separate from the personal,” he says.
• Avoid quarrels over glasses with business partners. If you are the sole owner of the business, no one can object to you taking all the rewards and going on a luxury cruise, winery tour or jungle safari. But if two or more business owners are involved, trying to split the reward for personal use can be risky. That’s why Matthew Ross, co-owner and COO of sleep and mattress review site The Slumber Yard, and his partner decided to spend the rewards on gift cards to give away as employee bonuses. “If it was just me, I would probably take some of the awards for myself,” says Ross. “But we didn’t want to share the awards.”
• Use Rewards to Boost Your Business. Your rewards can fund some of your company’s operations or help pay off business debt, says Michael Cetera, senior credit analyst at FitSmallBusiness, a digital resource for small businesses. For example, Cetera points to one small business owner who uses credit card rewards to fund employee health insurance. “This is definitely one of the ways to get money back into your company and make it more attractive for employees,” he says.

However, it may be better not to rely on your points, miles or cashback for essential business expenses unless your business expenses are very recurring, Cetera says.

“Think of it as gravy, not something you can rely on to fund business operations,” he says.

Option #2: Treat yourself to business card rewards

If you are the sole owner of the business, you may be tempted to keep the rewards and use them for personal perks such as spa visits, vacations, or a special gift.

“The awards are yours and you should use them however you see fit,” Cetera says, adding that he knows “a lot” of business owners who spend business awards on themselves.

Small business owner Casey Ames recently used his business rewards to go camping in South America with his fiancee. As an active partner of Harkla, a Seattle-based company that offers products for families with children with special needs, he has an agreement with his partner that allows him to keep all the points.

“Business travel can be deducted, so it makes sense to pay for travel and use miles for personal use,” says Ames.

If you go this route, you don’t have to worry about running into a tax inspector. Using your business rewards for personal items shouldn’t cause you any tax problems, says federally licensed tax specialist Abby Eisencraft.

“It’s actually not a problem with the IRS at all,” she says.

However, financial professionals who are strongly in favor of separating business and personal expenses say it’s still better to use rewards to cover business expenses and look for other ways to get tax breaks, such as hiring children or renting out part of your home. Your business.

“There are so many other ways to reduce your tax bill,” Goodbred says.

Tips for Spending Your Business Fees Wisely

Don’t have a plan on how to spend the points, miles or cashback you accumulate on your business credit card? Here are four ways to get the most out of your business remuneration spending:

Create a business reward plan

Calculate the rewards you expect to receive from your business expenses each year and consider how you can make the most of them.

“Like consumers, small business owners tend to think of credit card rewards as an afterthought,” Cetera says.

Instead, by taking the time to put together a focused plan, you can reap the maximum benefit. For example, using rewards to receive merchandise rather than gift cards to your employees for a job well done can allow you to avoid having to list a gift as income for your employees. The IRS says you can choose not to report some inexpensive gifts like flowers or fruit baskets, but not cash or “cash equivalents” like gift cards.

Get creative to get the most out of business rewards

If you decide to use rewards to grow your business, look for interesting ideas from other business owners. For example, clothing startup Betabrand uses rewards to send employees on dream vacations to places like Iceland, Morocco and Japan.

Because you cannot price employee loyalty and goodwill, many business owners choose to use points and miles to reward employees. For example, Ross gives Whole Foods gift cards to gourmets, Nike gift cards to fitness enthusiasts, and Uber gift cards to travelers.

“There are 100 different options so you can tailor them for each employee,” he says.

Talk to a Tax Specialist

It’s always a good idea to discuss with your accountant or tax professional your plan for earning and spending points, miles, or cashback on your business. Please be aware that some types of rewards may have tax implications.

For example, if you’re shopping with a card that offers a 2% cashback, you can’t deduct the full price of the item because the IRS treats the cashback as a post-purchase discount, Ramnarain says. If you make a $100 business purchase on a card that offers a 2% cash back, you can only deduct $98, he says.

Be on the same wavelength with your partner

If you have a business partner, it’s a good idea to include a section on business credit cards in your operating agreement. Include information about what cards each person has, who is responsible for making payments, and how rewards will be spent, Cetera recommends.

“You need to spell everything out so that there are no problems,” Eisencraft says.

bottom line

Now that you know the pros and cons of spending business rewards on your business versus yourself, it should be easy for you to decide whether to reinvest in your company or get a well-deserved reward for your hard work.