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What prevents people from using cashback rewards as an income?

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zombiekiller

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I have several credit cards with cashback rewards. They range from 1% to 2% cashback.

Suppose you have 3 credit cards with credit limit of $15k each and each card gives you 1.5% cashback.

Now, suppose you own a motel/hotel. You live in your own hotel. You charge an absurd nightly charge, say $15k/night.

So, each night you charge a different credit card $15k. Then the following day, you pay it all off.

Ok, let's do the math.

.015 x $15,000 = $225

$225 x 30 (day/month) = $6750

That's $6750/month tax free, since the IRS does not consider cashback rewards as taxable income. They treat it as a discount.

So, all one needs to start out is a small motel and may be $40k in the bank account and voila one could have a stable income of $6750/month tax free.

May be I'm too simplistic about this scenario?
 
You need to get some cock Zombie.

I have no credit cards.
 
TANSTAAFL.jpg


Unless you're a socialist

and cry Wa-Wa

and play the victim

and rely on the Kindness of Strangers
 
zombiekiller said:
I have several credit cards with cashback rewards. They range from 1% to 2% cashback.

Suppose you have 3 credit cards with credit limit of $15k each and each card gives you 1.5% cashback.

Now, suppose you own a motel/hotel. You live in your own hotel. You charge an absurd nightly charge, say $15k/night.

So, each night you charge a different credit card $15k. Then the following day, you pay it all off.

Ok, let's do the math.

.015 x $15,000 = $225

$225 x 30 (day/month) = $6750

That's $6750/month tax free, since the IRS does not consider cashback rewards as taxable income. They treat it as a discount.

So, all one needs to start out is a small motel and may be $40k in the bank account and voila one could have a stable income of $6750/month tax free.

May be I'm too simplistic about this scenario?
Click to expand...

Your hotel is charged a 4 or 5 percent fiscount by the credit card company. So the hotel charges you 15,000; you charge it to you card and then pay off the card, BUT the credit card only pays your hotel 14,400, after a 4% discount. You get a 225 cashback, but you lose 375. And you owe me $1,500 for this advice.
 
Harke the Boeotarch said:
Because if it´s at all possible to begin with it´s highly likely to be some kind of criminal offense that you will be punished terribly for.
Click to expand...

What criminal offense would that be?

Is it a criminal offense rent your own motel room? Is it a criminal offense to charge an absurd nightly rate? Is it a criminal offense to charge the credit card and pay it off right away the next day?
 
Benvolio said:
Your hotel is charged a 4 or 5 percent fiscount by the credit card company. So the hotel charges you 15,000; you charge it to you card and then pay off the card, BUT the credit card only pays your hotel 14,400, after a 4% discount. You get a 225 cashback, but you lose 375. And you owe me $1,500 for this advice.
Click to expand...

Hehe, I had no idea about the %4-5 thing.
 
Benvolio said:
Your hotel is charged a 4 or 5 percent fiscount by the credit card company. So the hotel charges you 15,000; you charge it to you card and then pay off the card, BUT the credit card only pays your hotel 14,400, after a 4% discount. You get a 225 cashback, but you lose 375. And you owe me $1,500 for this advice.
Click to expand...

The first time I've heard Ben make sense :lol: and you're right
 
Yes the costs of running the credit card network is paid through 'swipe fees' by the merchants. They pay a little on each transaction so they can take credit cards. That is why some small mom and pop operations with a small profit margin will not let you use cards for very small transactions because they can literally lose money on the transaction.
 
Wouldn't the credit card companies catch on very quickly and put an end to your 'business'?
 
zombiekiller said:
Ok. Specifically what's wrong with my scenario?
Click to expand...

As someone else mentioned, your motel will pay a processing fee that is likely to be greater than the reward you receive on your credit cards. Also, the revenue generated by your bogus room rentals will be added to the motel's gross revenue, which the IRS does consider taxable.
 
I just slipped and fell on a crooked step at your Hotel.I'm suing you for millions! :gogirl:
 
I have a good friend who is an engineer and actually does play credit card roulette, so to speak. He opens new cards all the time, gets introductory bonuses or cash, and keeps getting out before he owes annual fees upon the anniversary renewal.

He keeps track of it all in an Excel spreadsheet and it's perfectly legal, but takes some managing. The companies are somewhat on to him, but so far it's still working. He makes a few thousand a year, and mostly does it to punish those shitty companies for bombarding his mail box with those endless offers.
 
Hehe, ok back to the drawing board.

I drove for 10 hours back to Arkansas yesterday. Had lots of time to come up with absurd scenarios LOL.
 
NotHardUp1 said:
I have a good friend who is an engineer and actually does play credit card roulette, so to speak. He opens new cards all the time, gets introductory bonuses or cash, and keeps getting out before he owes annual fees upon the anniversary renewal.

He keeps track of it all in an Excel spreadsheet and it's perfectly legal, but takes some managing. The companies are somewhat on to him, but so far it's still working. He makes a few thousand a year, and mostly does it to punish those shitty companies for bombarding his mail box with those endless offers.
Click to expand...

Well, I've been sort of doing something similar, but not really.

I now have a team of 5 guys I brought down here from the Chicago office. The travel department gave me 2 options when it came to living arrangements and other stuff: use the company credit card or use my own and get reimbursed. At the time, it occurred to me that I could use my card to pay for everything, earn the 1.5% cashback, and get reimbursed by the company. Been paying for everyone's living arrangements, equipment, etc. with my credit card and get reimbursed by the company the following week so I could pay off the credit card before they start charging interest. So far, it's been working.

Regarding your friend, I'm not anywhere near as financially smart or bold to do what he's doing.
 
zombiekiller said:
Regarding your friend, I'm not anywhere near as financially smart or bold to do what he's doing.
Click to expand...

It's a great way to ruin your credit. Your credit score drops if you have too many credit cards or if you have too many applications for credit in a short period of time.
 
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