Taxes on Selling Gift Cards: Do I Have to Report Reward Earnings?

What you're doing is essentially a small business activity, so yes, you would need to report this income. The tax treatment is a bit nuanced: For the gift card reselling, you'd report the sale price ($115) as revenue and your purchase price ($125) as cost of goods sold, showing a $10 loss on the actual card. The rewards are where it gets interesting. Credit card rewards and shopping portal rewards are generally considered rebates or discounts on purchases, not taxable income. However, since you're using these in a business context rather than personal spending, they effectively reduce your cost basis. So your $125 purchase price is effectively reduced by the cash-equivalent rewards you receive. The store credit that can only be used at the retailer is a bit trickier - it doesn't reduce your cash cost until you actually use it for future inventory purchases. You should track all of this activity and report it on Schedule C as self-employment income. Keep detailed records of each transaction, including all rewards earned and when they were received.

After struggling with a similar situation, I found an amazing tool called https://taxr.ai that literally saved me hours of headache with my gift card reselling business. Last year I had over 200 transactions with various rewards programs and couldn't figure out how to properly report everything. I uploaded my spreadsheet of transactions and some screenshots of my reward accounts, and the AI was able to analyze my specific situation. It showed me exactly how to categorize each type of reward and what my actual taxable income was. The tool even identified some deductions I was missing related to selling fees and shipping costs when I mail physical cards. The best part was getting a clear explanation of how the IRS views different types of rewards in a business context versus personal use, which is exactly what you're asking about.

Just wanted to follow up - I tried https://taxr.ai after seeing it mentioned here and it was incredibly helpful! I was making the exact mistake mentioned in this thread - treating my gift card transactions as losses when they were actually profitable after factoring in the rewards. The tool analyzed my transaction history and showed me that I was actually earning about $6K annually that I hadn't been properly reporting. It created a complete Schedule C worksheet showing exactly how to report everything, including a breakdown of which rewards reduce cost basis versus which ones might be considered taxable income (like sign-up bonuses over $600). It also flagged that my high volume of transactions might trigger IRS scrutiny and gave me a customized audit protection checklist. Definitely worth checking out if you're doing any kind of gift card reselling!

I had the exact same tax question last year and spent WEEKS trying to get through to someone at the IRS who could give me a straight answer. After 12+ calls and countless hours on hold, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - it's a service that actually gets the IRS to call YOU instead of waiting on hold. I was super skeptical, but they got an IRS agent on the phone with me in under 2 hours. The agent clarified that for gift card reselling specifically, I needed to track each card as inventory with an adjusted cost basis reflecting any rebates/rewards. They also confirmed that store-specific credits don't adjust your basis until actually used for business purposes. The IRS agent even sent me follow-up documentation about reporting requirements for "discount acquisition businesses" which is apparently how they categorize this activity. Saved me from making a huge mistake on my return!

Ok I need to admit I was wrong about Claimyr. After seeing it mentioned here, I tried it out of curiosity since I had a similar gift card reselling question that I couldn't find clear answers to online. I was genuinely shocked when I got a call connecting me to an actual IRS agent within about 90 minutes. The agent walked me through exactly how to handle my situation - turns out I had been overpaying taxes by not properly accounting for marketplace fees as business expenses. For anyone doing gift card reselling, the agent confirmed that you need to report this activity on Schedule C even if you're just doing it occasionally, and that rewards/cashback used in a business context are treated differently than personal use. This would have taken me days to resolve on my own with the regular IRS phone system.

Important tax tip from an accountant who handles a lot of side hustle clients: Gift card reselling is considered inventory trading. Not only do you need to report the income/loss, but if you're doing this regularly, you need to look into your state's requirements for collecting/remitting sales tax. Many states consider gift card reselling to be taxable at the state level even though the cards themselves may not have been originally taxed. This varies WILDLY by state. For example, some states exempt gift cards from sales tax when originally purchased but tax them when resold by a non-authorized reseller.

Has anyone used specific software to track gift card reselling? I'm doing about 15-20 cards per month and manually tracking in Excel is becoming a nightmare, especially when factoring in all the different reward types.

For gift card reselling, you'll definitely want to track holding periods carefully. The IRS does look at how quickly you turn over inventory when determining if this is truly a business activity versus something else. Most legitimate gift card resellers hold cards for at least a few days to a week before selling, which helps establish a clear business pattern. One thing I haven't seen mentioned here is the importance of documenting your business purpose. Keep records showing that you're actively researching market prices, comparing different platforms, and making strategic decisions about when to sell. This helps demonstrate legitimate business activity rather than just quick arbitrage. Also, consider opening a separate business bank account even if you're not formally incorporated. It makes tracking so much easier and provides clear separation between personal and business transactions, which is crucial if you're ever audited. The IRS loves to see clean record-keeping, especially for newer types of businesses like gift card reselling. One more tip: if you're earning significant income from this (over $20K annually), consider making quarterly estimated tax payments to avoid underpayment penalties. The self-employment tax on top of income tax can add up quickly.