The points, miles, and cash back you earn from credit cards generally aren't taxable - but there are 2 exceptions

• With tax season upon us, make sure you're aware of any tax implications attached to the points, miles, and cash back you've earned from rewards credit cards.
• The good news is that rewards you earn from a credit card welcome bonus and ongoing spending are generally considered a rebate, not taxable income.
• That said, with business credit cards, the rewards you earn can affect you how much you're able to deduct as as business expense.
• If you earn points, miles, or cash back for opening a bank account, that bonus is typically taxable - you'll likely receive a 1099 form in the mail. Credit card referral bonuses are usually taxable as well.
• Always consult with your accountant if you're in doubt about whether certain rewards need to be reported on your tax return.
• See Business Insider's list of the best rewards credit cards »

The world of rewards credit cards can be a very lucrative one. The Chase Sapphire Preferred Card, for example, offers new cardholders 60,000 points after they spend $4,000 in the first three months - and you'll earn 2x points on all travel and dining purchases.

As long as you're paying your balances in full each month and not spending more than you can afford, there's little downside to earning points and miles, right? With tax season approaching, you don't want to be taken by surprise when it comes to any taxes owed on your rewards balances.

While in most cases the points, miles, and cash back you earn with credit cards aren't taxable, there are a few exceptions you should be aware of. So with the caveat that you should always account your accountant and lawyer for tax and legal advice, let's take a look at some of the tax ramifications of credit card points, airline miles, and hotel points.

Keep in mind that we're focusing on the rewards and perks that make these credit cards great options, not things like interest rates and late fees, which will far outweigh the value of any points or miles. It's important to practice financial discipline when using credit cards by paying your balances in full each month, making payments on time, and only spending what you can afford to pay back.

Points are usually considered a rebate; not taxable income

The IRS issued a memorandum in 2010 addressing the issue of whether credit card points are taxable. It clarified that, generally speaking, credit card points and cash back are held to be discounts or rebates on purchases. So if you earn 2% on a $100 purchase, that $2 is not extra income but considered a $2 rebate on your $100 purchase. The same is generally held for airline miles, hotel points, or other types of credit card rewards. That means that in most cases, miles, points and cash back from credit cards are not required to be reported to the IRS as income.

One possible exception is if you apply for a card where you get a bonus without having to make any purchases or meet any spending requirement. In that case, the bonus would be considered taxable income. Thankfully, there aren't many (if any) cards that give out welcome offers without having any spending requirement at all. If you ever wondered why there are some cards that give out a bonus upon just making one purchase, it's to avoid any of the tax implications that would be in place if they gave the bonus with no spending requirement at all.

Rewards on business credit cards affect your deductions

Things can be slightly different if you're talking about a business credit card that you use for business expenses. Let's again talk about a 2% cash-back bonus on a $100 purchase that is a business expense. The $2 cash back that you get is still not considered taxable, but it does affect how much you are able to deduct as a business expense.

Because that $2 cash-back bonus you got is considered a rebate on your purchase, you're no longer eligible to deduct the full $100 as a business expense - you'd only be able to deduct $98. So in a way, any cash back, miles, and points earned on business expenses do count against your taxable income.

Bank bonuses are taxable - watch out for 1099 forms

Another common area where your credit card points might be considered taxable income is if you earn cash, miles, or points from opening up a bank account. Many banks offer a bonus if you open a new account and meet a requirement of funding it with a certain amount or making a certain number of direct deposits or transactions. Because there is no spending requirement involved to earn this bonus, it's generally considered taxable.

If the bank gives out its bonus in a non-cash instrument such as frequent flyer miles or points, it will likely value the miles at their own rate, and in my experience the rate they set is higher than what I would consider a fair market value.

If you do sign up for a bank bonus, you're likely to receive a 1099 form from the bank. If you do receive a 1099-MISC or 1099-INT from a bank or credit card company, do not ignore it. If you disagree with the valuation, you can't just claim a lower amount on your taxes. Remember that 1099s are also sent to the IRS, so if you claim a lower amount without contacting the IRS, it may flag your return. You can dispute the valuation amount but you will need to first try to dispute it with the bank itself - and if you're not able to reach a satisfactory conclusion, dispute it with the IRS.

Credit card referral bonuses could also be taxed

Another area where you might have some of your credit card points or airline miles be taxable is if you earn any miles or points from referring friends or family members to get a new card. In 2018, both Chase and American Express sent out 1099 forms for the amount of Membership Rewards, Ultimate Rewards, or other miles and points that they paid out in refer-a-friend bonuses.

Again, the valuation that they put on the 1099 forms for the points paid out was higher than most people thought was a fair value - in which case you do have the option to dispute the valuation should you choose to do so.

I hope that this has helped you to clear up the air about whether or not your credit card miles and points are taxable. At the end of the day, the decision of what to report is yours, and it could never hurt to consult your accountant, lawyer, or other tax professional.

The best credit cards for paying your taxes

On a different note, if you're looking to meet a minimum spending requirement to earn a credit card welcome bonus, or to meet a spending threshold so you can unlock a free hotel reward night, paying your taxes with a card could make sense.

Here are some of the best cards to consider for paying your federal return, based on the return they offer on your spending:

• The Blue Business® Plus Credit Card from American Express - Earn 2x Amex points on the first $50,000 spent each year (then 1x)
• Citi® Double Cash Card - Earn 2% cash back (1% when you make a purchase, and 1% when you pay your bill)
• Chase Freedom Unlimited - Earn 1.5% cash back on every purchases
• Ink Business Unlimited Credit Card- Earn 1.5% cash back on every purchases

See Business Insider's list of the best credit card welcome offers available now »

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