We profited $1,350 from paying our taxes!

Ever since I started into the Miles and Points game, I had heard people talking about how they paid their taxes with a credit card. My first reaction was that doing that is idiotic, after all there are always fees for charging your taxes. Once the fees are charged, the value of any points that you earned are going to be wiped out, right? That’s true-ish (I think I could find examples where it would still be profitable) but if you figure in sign up bonuses, all of a sudden it gets a lot more lucrative.

I have a full-time job and pay into taxes like any normal paycheck employee, but Jenn owns a business as an owner/operator. We’ve debated for years about whether she should pay quarterly taxes or just wait until the end of the year to pay in one lump sum. The lump sum thing always wins, because frankly, it’s just easier. We knew that we were going to have to pay somewhere in the neighborhood of $4,000 dollars in additional taxes to cover what she hasn’t paid in, so we thought what better way to pick up some points than with a nice credit card bonus?

Some people use this as an opportunity to go after a massive signup bonus on a card that has a large spend to meet the bonus and then use the big tax payment to make that spend a little more reasonable. The typical example of this is the American Express Business Platinum Card where they might offer 150,000 points after you spend $15,000 in 3 months. It might not be reasonable for you to spend that much in 3 months, but if you pay your taxes on it, maybe the spend is reasonable. This is something we might think about in the future, but it wasn’t worth it for us this time.

After discovering Turkish Miles and Smiles last year and realizing just how great a deal it was for booking United Airlines flights domestically and to Mexico (15,000 points round trip domestic in economy, 20,000 points round trip to Mexico in economy) we knew we at least wanted some points we could transfer to Turkish. The Points Guy has a great article about how this program can be a tremendous deal. We had been amassing a lot of Chase Ultimate Reward points, but they aren’t transferable to Turkish. Citi Thank You points and Capital One Miles are, however. I already had a Citi Premier Card so we decided to go with the Capital One Venture Rewards Card.

The Capital One Venture Rewards Card is great for it’s simplicity, its 2x points on everything. The great thing about that for people who have multiple credit cards is that its usually pretty easy to find a credit card that will give you 3x, 4x, or even 5x on things like travel, groceries, gas or dining out but so many categories are always 1x that this is a great everything else card. Like, if instance, paying your taxes. This card was also offering a 75,000 point signup bonus, which is a very generous offer. There is a $95 annual fee for the card and the minimum spend for the bonus was $4,000 in 3 months.

Jenn signed up for the offer and was approved. Our taxes did indeed come out to around $4,000 owed, and with the amount that we spent on Turbotax it got us to a total of $4,030. The fee for using a credit card turned out to be $95 which was a little less than 2.4 percent, I’ve heard that you can get a fee about a half percent lower than that, but I guess we didn’t shop around enough. If you add in the $95 annual fee that we paid to get the points our fees for doing this was around $190 dollars. The end result of all of this was that we earned the 75,000 sign up bonus and with the 2x on the spend, it brought our total to 83,254 Venture Miles.

The cash value of these points are 1 cent per point, so if you just take the cash it would be $832 minus the $190 in fees for a quick profit of $642. I prefer points over the cash, because I like to travel. The points guy values these points at 1.85 cents per point or a total of $1,540 minus the fees gets me a profit of $1,350. Now in all honestly, the accurate way of looking at this is that the points acquired are worth approximately 4 off-peak flights to Mexico or 5 off-peak domestic flights. And in the words of my lovely wife “I ain’t mad about it.”

For a more in-depth article about the benefits of paying taxes with credit cards, check out this article from Frequent Miler