Paying Taxes with Rewards Credit Card When You Don't Owe

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natureexplorer
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Paying Taxes with Rewards Credit Card When You Don't Owe

Post by natureexplorer » Fri Jan 03, 2014 10:44 pm

One can easily pay taxes with a credit card for less than 2% in fees: http://www.irs.gov/uac/Pay-Taxes-by-Cre ... Debit-Card

There can be circumstances the reward from a credit card can outweigh the 2 cents per spending. So when you owe taxes, it can make a lot of sense to pay with a credit card.

However, the logic could still holds even when you don't owe. For example, you could pay taxes with a rewards credit card and then file your return and wait for the refund. Does anyone have experience with that? Any thoughts/advice/recommendations? I would imagine that it could increase the chance of an audit.

manwithnoname
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Re: Paying Taxes with Rewards Credit Card When You Don't Owe

Post by manwithnoname » Fri Jan 03, 2014 11:27 pm

natureexplorer wrote:One can easily pay taxes with a credit card for less than 2% in fees: http://www.irs.gov/uac/Pay-Taxes-by-Cre ... Debit-Card

There can be circumstances the reward from a credit card can outweigh the 2 cents per spending. So when you owe taxes, it can make a lot of sense to pay with a credit card.

However, the logic could still holds even when you don't owe. For example, you could pay taxes with a rewards credit card and then file your return and wait for the refund. Does anyone have experience with that? Any thoughts/advice/recommendations? I would imagine that it could increase the chance of an audit.
I can find investments that pay more than 2%. It doesn't make sense to use a CC and wait for a refund.

I never heard of some of the companies that are charging less than 2%.

livesoft
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Re: Paying Taxes with Rewards Credit Card When You Don't Owe

Post by livesoft » Sat Jan 04, 2014 12:24 am

Furthermore, check the fine print of those cashback rewards. Many times things such as tax payments or buying travelers checks are excluded from the rewards.
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calwatch
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Re: Paying Taxes with Rewards Credit Card When You Don't Owe

Post by calwatch » Sat Jan 04, 2014 12:56 am

I've done it before, in order to purchase a Savings Bond. Basically, I'm trying to have a refund of $5,000 such that I can purchase an additional paper I-Bond beyond the $10k limit. I've also used Payusatax.com before to pay taxes to meet a spending challenge on Discover Card (basically $500 if you spent $2000 for five months, or an effective 5% cashback rate), while dialing back withholding from work during this period.

Overall, there are more effective ways of "manufacturing spending" - the frequent flyer message boards are all on this, to gain frequent flyer miles which are often worth more than a measly two cents a dollar - than paying taxes, but paying taxes is one of those "low hanging fruit" types of activities since everyone has to do it.

brogrammer
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Re: Paying Taxes with Rewards Credit Card When You Don't Owe

Post by brogrammer » Sat Jan 04, 2014 12:10 pm

The first and only time I tried buying a tax-refund I-Bond, some jerk filed a second tax return with my social security # and address (IRS Identity Theft). Nine months later when the whole thing got resolved, I didn't get my I-Bond, and finally got my $5,000 back. No lasting harm done (in fact I made more interest on that $5k than I could have in a savings account...) but it was annoying and stressful. I will never try that again, though, as it is tremendously difficult to deal with them if things go sideways, even when you have done nothing wrong.

natureexplorer
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Re: Paying Taxes with Rewards Credit Card When You Don't Owe

Post by natureexplorer » Sat Jan 04, 2014 3:47 pm

brogrammer wrote:...it is tremendously difficult to deal with them if things go sideways, even when you have done nothing wrong.
Good point about the possiblility that things may not go as planned. Sorry about your troubles, though in your case the troubles was really independent of how you paid the taxes.

natureexplorer
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Re: Paying Taxes with Rewards Credit Card When You Don't Owe

Post by natureexplorer » Sat Jan 04, 2014 3:58 pm

livesoft wrote:Furthermore, check the fine print of those cashback rewards. Many times things such as tax payments or buying travelers checks are excluded from the rewards.
Good point! That's very much true, one has to do the research and even then there is probably some remaining risk.

It seems like this guy has done some of the research: http://millionmilesecrets.com/2011/12/27/taxes/

natureexplorer
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Re: Paying Taxes with Rewards Credit Card When You Don't Owe

Post by natureexplorer » Sat Jan 04, 2014 4:00 pm

calwatch wrote:Overall, there are more effective ways of "manufacturing spending" - the frequent flyer message boards are all on this, to gain frequent flyer miles which are often worth more than a measly two cents a dollar - than paying taxes, but paying taxes is one of those "low hanging fruit" types of activities since everyone has to do it.
Most those ways only a manufacture spending in the thousands per transactions and some even require driving to a store and come with their own sorts of risks.

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