Question
Let us say you have a business. Under a Visa/MC agreement, are you allowed to "sell stuff to yourself" to reap miles, if you are willing to pay the fees?
For example, Nova, through Costco, says a "best case" rate is about 1.64% for a business accepting a credit card. For the next 3 months, the Citibank AAdvantage MC is offering 1 AA FF mile plus 1 cent cash back for CC use.
By maximizing the float and buying a 50-day bank CD with the proceeds of a large "purchase" from oneself, it appears to me that you could be getting FF miles for almost nothing, after-tax.
Is this allowed by terms of the Visa/MC agreement? As a separate question, is it illegal? Thanks.
Answer
Let us say you have a business. Under a Visa/MC agreement, are you allowed to "sell stuff to yourself" to reap miles, if you are willing to pay the fees?
For example, Nova, through Costco, says a "best case" rate is about 1.64% for a business accepting a credit card. For the next 3 months, the Citibank AAdvantage MC is offering 1 AA FF mile plus 1 cent cash back for CC use.
By maximizing the float and buying a 50-day bank CD with the proceeds of a large "purchase" from oneself, it appears to me that you could be getting FF miles for almost nothing, after-tax.
Is this allowed by terms of the Visa/MC agreement? As a separate question, is it illegal? Thanks.
Not illegal. Possibly against the terms. But you could sell nothing to me, and we could work it out for sure. Where is the 1 mile and 1 cent cashback at? I know there was a double mile promo for some types of merchants.
Answer
Not illegal. Possibly against the terms. But you could sell nothing to me, and we could work it out for sure. Where is the 1 mile and 1 cent cashback at? I know there was a double mile promo for some types of merchants.
ja_user:
I have had a Citibank AA Mastercard since about 1990. I got a postcard from Citibank in the mail a couple days ago, telling me that for August/September/October purchases, in addition to my regular 1 AA FF mile per dollar spent, I'd get a 1 cent cash credit on my statement.
Looks like virtually free money to me, with interest rates going up.
Answer
Hate to break it to you, but if I were to use this "method" I would SOMEHOW feel not completely clean with the act... I don't know, maybe it's just me.
Answer
ja_user:
I have had a Citibank AA Mastercard since about 1990. I got a postcard from Citibank in the mail a couple days ago, telling me that for August/September/October purchases, in addition to my regular 1 AA FF mile per dollar spent, I'd get a 1 cent cash credit on my statement.
Looks like virtually free money to me, with interest rates going up.
If this is the case, I guess I will find out. As I have put 30k on Citi in Aug already. Better keep it up, is it targetted?
Answer
Hate to break it to you, but if I were to use this "method" I would SOMEHOW feel not completely clean with the act... I don't know, maybe it's just me.
Auracon: It's more of a theoretical thought experiment than anything else.
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If this is the case, I guess I will find out. As I have put 30k on Citi in Aug already. Better keep it up, is it targetted?
Yes - it is targetted.
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The tax consequences of flowing the funds through the business to get miles could be tricky. Worst case scenario is that you've created taxable income by giving the business revenue.
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The tax consequences of flowing the funds through the business to get miles could be tricky. Worst case scenario is that you've created taxable income by giving the business revenue.
I buy an envelope from you for $10k, you buy it back on your CC for 10K + CC transaction fees. I have an expense for the inventory, and the CC processing. Net 0 taxable income.
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The biggest problem is this violates your merchant agreement with the CC processor.
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The biggest problem is this violates your merchant agreement with the CC processor.
And can result in losing your merchant account.
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And can result in losing your merchant account.
Not bad if you are using the Merchant account just for this though, who cares? I would not do this at a real business, not mine anyway.
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I buy an envelope from you for $10k, you buy it back on your CC for 10K + CC transaction fees. I have an expense for the inventory, and the CC processing. Net 0 taxable income.
That's not running it through your own business, which is the subject of the OP. And for states and municipalities that have a gross receipts tax, you've just increased your tax base.
Answer
That's not running it through your own business, which is the subject of the OP. And for states and municipalities that have a gross receipts tax, you've just increased your tax base.
That could be running it through your own business, depending who the friend is. Had no idea some states would calculate tax base from Gross, obviously, you would need another state.