Will The IRS Take A Bite Of The New Apple Card?

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Will The IRS Take A Bite Of The New Apple Card?

Following Apple’s recent March announcements conference, the biggest buzz was about their Apple Card.  You will have to decide independently if you want to give Apple even more power over your life and if you really want to view them as a bank.  The overall idea is aiming for that “convenience” point in people’s lives and really hits the mark in trying to make tracking easier as well.  However, what I want to focus on here is the tax aspects and how they will affect you.

There are two aspects involved with the Apple Card that could be possible tax issues.  One is the interest you pay to Apple until you pay off the debt.  The second is how the “cash back” aspect is treated.  Do you need to pick up additional income on your tax return for the 2-3% you get back on every purchase using your phone to pay for things?  Each of these is also divided into two parts: Using the Card for personal reasons or for business purposes.

A very neat feature of the Apple Card is that you can easily change your credit payment plans and see the amount of interest that will be due with each payment plan.  If you use the Apple Card for personal use, the interest might have counted as an itemized deduction in prior years. However, since Apple Card will only be released in the summer of 2019, the interest you pay to Apple will never be utilized on Sch. A of your Individual tax return. For businesses (and people using Apple pay for business purposes), this will still be a taxable expense that can be taken as a deduction on your return.

The 2-3% cashback issue is essentially the same as your other credit card cashback, points and all those miles you’ve been earning. How are they taxed?  The IRS stated in a 2010 Memorandum that cashback and points earned in transactions will be treated as rebates and discounts rather than income to the taxpayer.  This would certainly hold true for Apple Card, and if you use the Card for personal reasons, will not have any income to pick up.

For businesses, there is an interesting difference often overlooked.  While they are not required to pick up income on the cashback aspect from Apple pay, they will have to reduce their expenses.  For example, if you spend $100 on office supplies, and get 2% or $2 back, you will only be able to report 98% or $98 as an expense on your taxes.  Although this can be painful and often immaterial, it is important to keep in mind for when it does become material.  I’m sure if you reach the point where it’s material enough to worry about, you will make Apple very happy.

The writer is the manager of the Individual & Partnership Department at Philip Stein & Associates.

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