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Posted

Several years ago there was a discussion about when you could deduct expenses using a bank issued credit card vs a store card. I think the ruling was a bank issued card the expense was deductible when charged. However on a store card it was deductible when paid. However most store cards today are backed by a bank somewhere. In my area we still have some old store cards running around. How would you approach the deductibility for thses?

Posted

Interesting topic. We just cancelled a store card because they sold/hired it out to one of the affinity visa/mc issuers. For certain things, we prefer store cards as we let the store take the risk if the card gets hacked or lost (no balance, so their obscene interest is of no concern). For business use, and really personal, it is derelict to not be using a rewards card, which also makes store cards, sans rewards, useless to me.

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Posted
2 hours ago, TAXMAN said:

Several years ago there was a discussion about when you could deduct expenses using a bank issued credit card vs a store card. I think the ruling was a bank issued card the expense was deductible when charged. However on a store card it was deductible when paid. However most store cards today are backed by a bank somewhere. In my area we still have some old store cards running around. How would you approach the deductibility for thses?

The purchaser has obligated him- or herself by paying the vendor with borrowed funds, so the deduction is when the charge occurs, not when the payment is made to the credit card company.

Here are some references:

  • Rev. Rul. 78-38 states that you may deduct a donation to a qualified charity via a charge to your bank credit card in the year the charge is made, regardless of when the bank is repaid
  • Rev. Rul. 78-39 states the same rule for medical expenses.
  • IRS Pub. 583, Starting a Business and Keeping Records (Rev. January 2007), p. 13, eludes to treatment of business expenses charged to a credit card using the transaction date for recording the deduction.
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Posted

Are you saying, even for cash accounting, one MUST account for charge purchases before the cash is spent? I see "may" in your rule mention, not "must". I know of many cash accounting who use cards to delay expenses, and hold checks to delay income, all which have passed audit, and at least one, a very detailed examination. Cards can also be used to hurry up expenses, in a cash system, as one can place orders Dec 31, and make a payment the same date.

I see things like this often, not considering some use cash accounting.

Posted
Just now, jklcpa said:

The deduction is taken in the year the payment to the payee occurs. 

You lost me for a moment. "so the deduction is when the charge occurs, not when the payment is made to the credit card company." and "The deduction is taken in the year the payment to the payee occurs." cannot both be the "rule".

There are two rules, for cash basis, when the payment is made, such as the check date or ACH date. For accrual basis, when the obligation occurs.

For tax prep, I suppose there can be differences than "accounting", just as payroll accounting is always calendar year, even if the company itself is on a non-calendar (tax/accounting) year.

Posted (edited)

Again, deduction is when the vendor, charity, medical provider, etc gets paid by the credit card company on behalf of the person who owes the money or is making a charitable contribution, etc. That person incurring the charge is using borrowed funds (on credit) to pay the bill. Like taking out a loan to pay the bill.

Example: I purchase $15 of office supplies from Staples in Oct 2024 and charge that to my credit card, and it doesn't matter that I carry a balance on that credit card until after year end. I will deduct that expense in 2024 because Staples got paid in Oct 2024 by my credit card company on my behalf. 

Edited by jklcpa
Added the example
Posted

How would one know that? Different merchant accounts have different payment timing. Or the merchant may not even close the transaction right away. I doubt a merchant is going to look up their funding dates and send reports. So I order on dec 30. Most merchants would close the 30th, but not all get paid the 30th, the 31st, or even Jan 1. Many will get funded the next day, most by the second day. It would be interesting to see how a dec 31 deduction holds up of the finding was actually Jan 1. 
 

At least in my world, it is a non issue. Why? I look at things early in Dec and if desired, load up on expenses before Dec 20 and pay or prepay them by Dec 24.
 

 

Posted
6 hours ago, Medlin Software, Dennis said:

How would one know that?

From the perspective of the person buying something, paying a business expense, making a chartible donation, paying medical expenses, etc, the deduction is in the year that the charge occurs, as I've said for the 4th time now and with cites.

This line of questioning reminds me of times when a non-tax pro sneaks through with a question and one of  the reasons why we don't allow or answer questions from the general public on this forum.

Also, one other post hidden that was off-topic.

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