Friday, November 18, 2016

Beware of Tax Implications of Transferring Points for Free Merchandise for Resale

Frequent Miler had a nice post yesterday talking about the possibility of transferring Membership Rewards points to Plenti to take advantage of the 50% transfer bonus for free merchandise.

Personally, I think Plenti is an underrated currency for resellers as it gives you access to free merchandise at Macy's.  If you are making the purchases anyways that earn points, you might as well sign up and use them.

In addition, like many loyalty points (Shop Your Way Rewards, Staples Rewards, etc.), when you use Plenti the purchase is tax free for the portion paid for with Plenti.  If you use Plenti for the entire purchase you won't pay any sales tax.  That can be a big deal.

While I don't disagree with Frequent Miler about getting free merchandise with your points (with his caveats), I don't think it's a very good idea to transfer the points to Plenti in order to resell the merchandise in most situations.

It is generally assumed that credit card points/miles are not taxable income (speak to your accountant).  If you transfer the points to Plenti and don't pay for the merchandise and then sell it, your COGS will be $0 and you will now need to pay taxes on all the revenue generated at whatever your tax bracket is.

If you have no other way of redeeming the points for a good value or you need the cash quickly you can do it but be aware of the tax implications and how they will erode the value of your points.