Cash back and points earned on the practice's credit card belong to the practice. Pick one way to record them with your CPA, then use it every time. Many CPAs treat cash back on business purchases as a discount on what you bought, not as income.
Why it needs a rule
Rewards show up in different ways. Some cards credit the statement. Some deposit cash to the bank. Some build points you trade for travel or gift cards. Without a rule, they end up categorized differently each month, or not at all.
A made-up example
Say the practice puts $40,000 a year of supplies, software and other costs on a card that pays 2% cash back. That's $800 a year. If it's applied as a statement credit, your books need an entry for it, or the card balance won't match the statement when your bookkeeper reconciles. Here's what reconciled means.
Two common ways to record it
- As a reduction of expense. The reward lowers the cost of what you bought, often booked to one account like supplies or a small rewards contra account.
- As other income. Some CPAs prefer a separate other income line so the reward is easy to see.
Either way, the tax treatment is your CPA's decision. Ask them once and tell your bookkeeper, so it's recorded the same way all year.
Points work a little differently. They don't hit your books until you redeem them. When you do, record the value you received, like a statement credit or a gift card, the same way you'd record cash back. Keep a note of what the points were used for, since a gift card spent on supplies and one spent on a staff gift may land in different accounts.
Using business rewards personally
If you redeem the practice's points for a family vacation, the practice paid for something personal. That usually gets recorded like an owner draw. If you put personal spending on the business card to earn points, it mixes your money with the practice's. Here's why that causes trouble.
Don't let rewards drive spending
A 2% reward on a purchase you didn't need is still a 98% loss. And carrying a balance at card interest rates erases the rewards quickly. Pay the card in full each month if your cash allows it.
What I'd do this week
- Check how your card pays rewards: statement credit, deposit or points.
- Ask your CPA how they want rewards recorded.
- Tell your bookkeeper the rule, and send any rewards statements they can't see.
- Move any personal charges off the practice card going forward.
Common questions
Are credit card rewards taxable?
It depends on how they were earned and used. Cash back on business purchases is often treated as a discount. Ask your CPA for your situation.
What about sign-up bonuses?
A bonus for opening the card can be handled differently from regular cash back. Tell your CPA when you get one.
Can I pay a personal bill with practice rewards?
You can, but record it as an owner draw, not a business expense. Better yet, use the reward as a statement credit on the practice card.
Want your cards to match your statements every month?
We reconcile every account every month and send your P&L and Balance Sheet by the 15th, so decisions like this start from real numbers. If that's what you need, apply to work with us.