It has come to light that within recent years, American Express has been offering bad advice on tax-free reward points to several small business owners. Sales agents have been busy meeting with thousands of business owners, in person, virtually, and over the phone to promote their AmEx cards. 

Businesses across the country have been told that this AmEx card can be used to pay their suppliers and staff. They informed their prospects that there will be a fee involved, but also told them it would be a profitable move for them in the end. The idea was that you would earn a reward for each transaction. This would in turn be converted to cash that would not be taxed. However, there would be a transaction fee deducted for tax purposes. 

Too good to be true? Definitely. While it sounded good in retrospect, this was indeed bad advice on tax-free reward points. The IRS clearly outlines that rewards earned by any business, including those that can be converted to cash by/for an individual, are likely to be taxable income. On the other hand, however, rewards points are not taxable if the individual recipient earns them from personal purchases. This is so because these rewards are deemed as a sort of discount or modification of the original cost of the purchase.

What To Do If You Fell Victim To AmEX Bad Advice

If you are a business owner who was misled by American Express’ offer, there is nothing much you can do to change the outcome. That is, if you have already used the AmEx card for salary purposes for your employees. Knowing that the selling point used by sales reps to get business owners to sign up for their promotion is not exactly the case, you will need to decide whether this is something you will want for your business. 

Remember to always refer to the IRS or a tax expert whenever you are faced with tax-related issues and promotions for your business, especially if you’re uncertain. This bad advice on tax-free reward points might have not been so harmful, but beware of tax break opportunities whether they’re from a well-known company or an emerging business.

Bookkeeping Confidential is a fully virtual bookkeeping firm that aims to assist small businesses to maximize their profits through organized and managed books. As tax season gets closer, we are here to help your business to prepare your books, and even clean up messy books for your CPA in due time.