You Do Not Get Paid With Rebates
You go shopping and spend $300. A month later the store where you spent that money sends you a check for $25. The question for you is did you just earn $25?
You better hope not because the IRS will come knocking on your door for tax on that $25.
The good news is this is nothing more than a rebate and the IRS treats it as a discount. It's as if you spent $275.
The point of this entire post is when you read about offers online for making money with rebates, don't expect to make any money. Earning money comes when you receive MORE than what you pay out.
This is an important distinction and it is what will be used by the IRS to determine whether you need to send a check to them.
For instance, banks often like to entice people to open an account by giving them cash or products. Is this considered income?
Yes. The point is, you made more than you spend and therefore that is considered income. Whether or not you will have to pay to the IRS depends on many factors. Your tax bracket is going to be a big determinant here. It's likely that one income offer here or there isn't going to raise any red flags.
This blog post is not meant to offer any financial or tax advice. Please consult a professional before using the information contained in this post.
Are Rebates Worth the Effort?
People love deals. However, how do you know the companies aren't raising their prices just to be able to offer a rebate? To see if they are worth it in the long run, make sure you are comparing prices among different sellers. Check Amazon, Walmart, and even eBay to see if those rebates will amount to anything significant.
Sometimes, searching for deals takes more effort than it's worth. Do you really want to spend two hours finding a rebate of $5? If you feel getting $5 is worth it, then by all means, knock yourself out!
Coupons Are Similar to Rebates
When you find online coupon codes to plug into your shopping cart, these act in a similar manner as rebates. The big difference is in the timing of when you receive the benefit. With coupons, they are applied instantly whereas with rebates you need to wait a while before receiving them.
Coupon codes also do not add any income. They are simply discounts.
Selling Old Items
You go through your closet and find items you'd like to list on eBay or other online selling places. You find a buyer and they proceed to pay you. The deal is done when you ship out the product. Is this considered income?
It depends on what you initially paid for the item. If you received more for selling online than you paid, then it would be considered income.
Again, it's going to depend on many on whether the IRS will come-a-knocking at your door. If it's a one-off deal, you probably won't run into trouble. If you make a business out of it, you can expect a call.
Don't Spend for the Sake of the Discount
Many of these rebate sites get people so hooked into using them that they end up spending money on unnecessary items. There is an old saying, "when is a bargain not a bargain? When you don't need the item."
The rebate sites make money whenever you spend. Usually, they receive an affiliate commission from the vendor. That is how they make their money. The takeaway is they will do whatever they can to get you to spend.
Beware the Recurring Income Schemes
Rebate websites would love nothing more than to get you hooked into a recurring income setup from one of its vendors. Think memberships here. When they convince you to take a trial into the membership, they receive hefty fees from the vendor. In many cases, they continue to receive fees as long as you stay a paying member.
The catch is they rely on you to forget that you signed up or the vendor makes it extremely difficult for you to cancel.
These schemes have come under fire of consumer groups lately so they many have made it easier for subscribers to cancel. This does not address you forgetting to take action and cancel the membership, however.
The enticement by the rebate company is high payouts for these types of offers. Usually, they amount to the cost of the first month's membership which means you get that month for free.
Most of these memberships are not worth the cost to stay a member. You can usually find as good or even better deals online. So, signing up just for the sake of getting the payout can become a dangerous game to play, especially if you let several slip through the cracks and forget to cancel.
Another issue is that it's a fuzzy line as whether you received income for the membership. If you get paid more than the cost of the membership than the difference is considered income.
Always understand the terms of the deal before signing up for anything. Know how to cancel the membership before you get billed and consider contacting the company before signing up to see how customer service handles the call.
Although this doesn't have anything to do with rebates or coupons, be aware that should you take advantage of a debt forgiveness deal, the IRS will consider what you don't pay as income. Since the amounts are usually in the thousands of dollars (creditors won't offer deals when it's only in the hundreds), the benefit you receive is likely to be significant enough to warrant IRS attention. In fact, creditors are required to register the debt forgiveness event with the IRS, so don't think you may be able to skate by. You won't!
Don't fall for the hype of making money when you sign up for rebate websites. You may still find some value in the websites but don't look at it as a means to generate income. It's a quick way into the poorhouse!
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