Non-taxable part of contribution

I don't think it's relevant who provides the benefit. However, I don't think the above case counts, because the benefit isn't received as a result of making the contribution, it's received as a result of simply using the card. You would have received that same $5 benefit if you spent the $500 on a new suit. And if you'd used a different card, you wouldn't have received the benefit.

But that brings up an interesting point. The reason that credit card rewards are not normally taxed (they should be in business situations but the IRS doesn't want to take the heat for pressing the issue) is that they are considered to be rebates or discounts from the purchase price.

In the case of a charitable contribution, the charity really doesn't get the whole $500. And part of what the charity doesn't get goes back to the contributor. So I'd guess that it might well be taxable under the Code, if the IRS wanted to pursue these kind of cases.

$5???? de minimus, de minimus,de minimus.

ChEAr$, Harlan

Oh, Harlan.

It's de minimis!! Ablative case, not nominative.

Katie in Sanm Diego

text -

Thank goodness the IRS has more important things to do than worry about the value of the airline miles.

Then again, they do have that annoying excise tax when you get airline miles from a car rental!

OK, somebody gets really clever with credit cards and mileage programs and for a $500 contribution, gets 25,000 miles (which saves him $400 on an airline ticket). Now, how much is deductible?

(In case you're wondering, the US Mint sells $1 coins for face and takes credit cards. So the issue becomes, where to spend cash; if the place would otherwise take credit cards, there's no benefit to using the case.)

Seth

Well, it's all greek to me... or something like that.

When you donate by credit card, a portion of your donation, usually between 3% and 5%, goes towards the donation company. Some of this fee goes to the credit card company, and some of that money comes back to you as a rebate which are the miles. I think the proper way to solve the issue is for the IRS to regulate the credit card companies and have them issue a 1099-MISC to the account reflecting the rebate from credit card donations. If the person takes the standard deduction they ignore the 1099-MISC, and if they itemize and deduct the charitable contribution, then they add the rebate to Other Income. It's too burdensome to have individuals do it.

Certainly if you donate your rebate, that is donate your miles, then you should be entitled to the full $500 donation. On the other hand, the IRS does not allow a deduction for miles.

It's the result of using the card to make the contribution.

What does buying a new suit have to do with anything? Case 1: I make the contribution with the card. I get miles. Case 2: I do not make the contribution. I do not get miles. If you add buying a suit to _either_ of those cases, I get more miles; that makes them a discount on the suit.

Suppose I used a cash-back card instead of a miles card; I spent $500, and got $23 back. Would you say the entire $500 is still deductible?

The Internal Revenue Code is all about transfers of value, not what would have happened in some alternate universe.

Seth

I'm not adding the suit to either case, I'm saying that you get the miles for using the card, no matter what you use it for. It's not due to making a charitable contribution.

You wouldn't get the miles if you made the contribution in cash or property, so it's not a benefit of making the contribution.

Yes. There's no difference between miles and cash in this regard.

As long as you get the same cash back regardless of what you use the card for, I don't think it falls under this rule.

Your identical twin does everything you do, has the same income, expenses, etc. except for one thing: he doesn't make the charitable contribution, and you do.

You have 500 more miles in your account than he has in his.

How are those 500 miles not due to the _only_ thing your two did differently?

I wouldn't get the free dinner if I donated $100 every month instead of $1200 in a lump sum, but it's still a benefit of making the contribution.

So I spent $477 (that's the out-of-pocket amount) and got a deduction for $500? I really don't think the IRS would go along with that.

But I don't. Some things are in different categories.

I don't think that's a rule.

Seth

You're actually triplets, and the third one makes the charitable contribution, but does it in cash. Now the _only_ thing you did differently from him was to use a particular credit card.

Oops, you're quads, and the fourth twin, instead of making a $500 charitable contribution, spends those $500 on a suit. He also has 500 miles in his account, even though he never made a contribution. How can the miles be attributed to the contribution, as opposed to the use of the card?

Basically, there's no direct linkage "If you contribute, you get miles in return".

It's attributable to the use of the card *to make the contribution*.

So if they offer a special: contribute $100 on July 15 and get a free dinner, but on any other day no free dinner, there's no "direct linkage" "If you contribute, you get dinner in return"?

What about "Contribute $100 by check, get a free dinner; by credit card, you don't"; is the dinner then attributable to the check rather than the donation?

In all those cases, I'd say the benefit results from making the donation, because without the donation, there's no benefit. (Yes, you could buy dinner, or buy a movie ticket that provides a "free" dinner, but those have nothing to do with a charitable contribution.)

Seth

But you get the same benefit even if you don't make the contribution and use the card for something else.

Of course there is, because you MUST make a contribution to get that benefit. You don't get the dinner for buying a suit on July 15.

ANY use of the credit card provides the benefit, not just a donation.

Unless you're talking about a credit card that offers airline miles only when you use it for charities, not ordinary purchases.

So if a store says "Buy a $500 suit and we'll buy you a free dinner" the dinner you get from donating $500 to the charity no longer counts, because you'd get the same dinner if you spent $500 on a suit?

If a third party offers a free dinner to large contributors to a charity, the deductible amount is still lessened by its value; there's no requirement that the charity itself provide the benefit.

Suppose the credit card company said "For any charitable donation you make using this card in June, we'll give you double miles." You donate $500, and get 1,000 miles. Clearly the second 500 miles is due to the contribution, because you wouldn't get them if you spent $500 on a suit. But all the miles came from the same source, and for the same reason (that particular line item on your bill). So how can you treat them so differently?

And use of it to buy a television is considered a rebate on the cost of the television.

Seth

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I guess that makes sense. You only get a deduction for the amount that you reduce your net worth, not the amount the charity actually receives.

A difference in that case is that the employer reimburses the employee for the business expense. So the employee receives miles even though he didn't actually spend anything. It's not a rebate as it would be for personal expenses, it's just pure income.

Any how many people actually report it? Besides, would it be Other Income or self employment income (giving them the "opportunity" to pay FICA tax)?

Of course, no one reported it, which is why the issue was raised by the IRS.

I think most people just considered them to be random perks of the job. When the company throws a party and provides food, would anyone consider it necessary to report the value of the food as income?