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Deducting reward point donations

By Kay Bell ·
Tuesday, August 31, 2010
Posted: 10 am ET

The IRS has determined that credit card rebates donated to charitable groups are OK and, more importantly to the giver, are tax deductible as long as the gifts comply with the tax law concerning donations.

That means that the donated reward amounts must go to qualified organizations, be made in the tax year for which the donation is claimed and be substantiated.

The Wall Street Journal reports that Discover Financial Services has six charitable partners and that its cardholders contributed more than $3 million of cash rewards to Haitian earthquake relief. Citizens Financial Group, says the newspaper, lets its cardholders use their rewards to make donations in $50 increments to more than 100 tax-exempt groups.

A nice additional piece of information in the letter ruling is that the IRS reaffirms that credit card rewards are rebates -- not income. As such, the rebate amounts, whether donated to a charity or kept by the cardholder, are not counted as income and therefore, aren't taxable.

And just to be clear, this is a private letter ruling. That means it technically applies only to the taxpayer who asked the IRS for a ruling on one taxpayer's particular situation.

However, these rulings are typically seen as a good indicator of IRS thinking on broader tax issues.

Do you have a credit card that pays you cash rewards? Have you ever donated those rewards to a charity? Would you consider doing so now that you know you can deduct the donation?

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