Avoid Tax Pitfalls When Donating Your Credit Card Rewards Points or Miles
Credit card companies are making it easier than ever to donate your rewards points to charitable causes. In fact, most credit card websites with rewards programs allow you to donate online. Choose between thousands of charitable causes and with one click, your rewards points will be used to help those in need.
The holiday season is a time to give back to those who are less fortunate and if you are considering making a donation from your credit cards rewards, be aware of the tax implications involved with this type of donation. The person or entity that makes the actual donation is the one who can claim the tax write-off. In other words, if Generous John wanted to donate the $400 he racked up on his cash back for the quarter but does it directly from the credit card site, the credit card company would most likely be considered the entity making the donation, not John. Credit card companies do not tell you this and could very well take the credit for your generosity.
If you are using a cash back card, you should redeem the cash on it first, and then write a personal check to the charity of your choice. This way, you can take advantage of the tax deduction as you normally would if you donated cash, or old items, such as used clothing or a car.
When are rewards points deductible?
If you are interested in donating your airline miles, you can do so for causes such as Make a Wish Foundation. The organization uses the donated miles to help someone in need to travel.
Keep in mind that you will not get the tax deduction if you are using your own miles. If you purchase them for the sole purpose of donation, you can use it as a write-off. Rewards points are only tax deductible if the points were purchased. The only time something is deemed tax deductible by the IRS is when it is paid for.
Rewards points that are acquired for free are not tax deductible because they were not paid for by the person making the donation. This is of course subject to laws within your state. As long as the rewards were purchased, you should be able to claim them on your taxes.
How to easily claim a donation
The simplest way to avoid the hassle of trying to figure out how to claim donated rewards points is to convert the amount to a cash value on your own. As mentioned above, use the amount you receive from your credit card company to cut a check and donate to the charity of your choice. Donations made this way are easily claimable on your tax return.
Save all of your receipts and relevant documentation so you or your tax professional can make the necessary deductions.
When in doubt, contact the IRS or a tax professional yourself to determine what you can and cannot claim on your taxes. For the most part, you can only claim donations made through rewards points if you either paid for the points yourself or got a cash value for the points and donated that money to charity.