From: Fort Lauderdale, FL
Dear TaxMama,
I am thinking of applying for the Fidelity MasterCard that automatically
applies 1.5% of all purchases made on the card to a Fidelity traditional IRA
account and before I apply I would like to know if this contribution will be
eligible as a tax deduction (of course if within IRS limits). I realize that
charitable contribution type reward credit cards do not qualify as deductible
charitable donations because the reward card is basically a consumer rebate.
I am thinking this may be the same situation with the Fidelity card.
I currently hold a cashback card that gives me up to 5% based on where I
spend (capped at $300/year) in the form of a statement credit that I routinely
request a refund check then cash the check and place it into my IRA account.
But it seems as though the Fidelity card would be a little more convenient
in terms of automatically depositing it without having to request and wait
for the refund check.
Thanks
Regina
TaxMama Replies
Hi Regina,
That's an interesting question.
I know that if you get mileage or bonus points, those things are not taxable.
Getting cash back IS taxable - and I report it on my tax return as either
interest income or a reduction of interest expense, depending on whether I
get the check or just use it to reduce my balance due. The net effect is the
same - it increases the profits.
But getting money that goes into an IRA.... hmmm... I just don't know. Here's
what I suspect will happen:
You'll report the payment as income (because what they are giving you is
like cash). Then, you may deduct the IRA contribution.
But it's worth asking IRS and seeing if IRS has a policy about this.
I've sent them a note. Let's see what they say.
Best wishes,
Eva Rosenberg, MBA, EA
