Earn 10% Off At Amazon By Overpaying Taxes?

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Earn 10% Off At Amazon By Overpaying Taxes?
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Image courtesy: Ken Teegardin
 

If you work for yourself, you’re probably all too familiar with the concept of estimated taxes. These are the quarterly payments self-employed individuals have to make throughout the year to the federal government since they don’t have taxes automatically withheld from their pay the way an employee of a company would.

Personally, I always prefer to pay as little as possible throughout the year while paying enough to avoid the underpayment penalties the IRS can charge if you end the year owing too much. However, this year I’m wondering if it might be worth overpaying in order to take advantage of a deal that recently surfaced through Turbotax.

This year, Turbotax is offering a 10% bonus on tax refunds if you take any portion of your refund in $100 increments in the form of Amazon.com gift cards.

If you’re like me, self-employed and unwilling to give the government a free loan by paying more than necessary quarterly, you might typically end the year owing another few hundred bucks to Uncle Sam, rather than receiving a refund like most Americans do. I’d be awfully tempted to make an additional tax payment in excess of the final quarterly estimated taxes I paid on January 15th in order to be eligible for a refund large enough to take advantage of this Amazon bonus.

As an additional benefit, it’s possible to earn miles and points while paying taxes. While you can use a credit card directly, this comes with a fee in excess of 2%, which can add up quickly when paying thousands in income taxes over the course of the year. Instead, I prefer to purchase Vanilla Reload cards at CVS using a points-earning credit card to add to my Bluebird Account and then write the government a check from there.

Doing the Rebate Math

By purchasing Vanilla Reloads in $500 increments, the $3.95 activation charge equates to less than 0.8%, which is a low enough surcharge to come out ahead on points redemptions given our normal expectation of earning at least 2% back in free travel. Adding this 1.2% expected net savings to the 10% Turbotax Amazon refund bonus, that’s like earning 11.2% back on the money you overpay to the government in taxes.

The 10% Amazon bonus with Turbotax is good for up to $10,000 in total, so you could take up to $9,090 in tax refund in the form of Amazon credit to take full advantage of the promotion. While I certainly don’t have a need for that much in Amazon credit, perhaps some of you may and can benefit from the full extent of the promotion.

To any tax experts out there: think I’m missing something here? Let us know in the comments!

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3 Comments
  1. Chase

    Casey-

    I am an Enrolled Agent (federally licensed tax professional) so I feel that I can weigh in on the efficacy of your calculations:

    In theory, this is a really good deal; In practice, not so much.

    It may work out well for someone who has a simple return (W-2 + Standard deduction) but on the radio yesterday I heard that this offer was only extended to those who have “Simple Returns” – Yes, they actually said “Simple”. It was the one with John C. Reilly talking about how amazing one can be at doing their own taxes.

    Being self-employed, therefore filling out a Schedule C, would not be considered a simple return. On top of that, I would be willing to bet that TurboTax doesn’t consider a return with a schedule A (Itemized deductions) to be considered simple either.

    In conclusion: This may be good for someone who literally has a simple return- but if that is the case, why would you pay TurboTax $100 (ish) to do it? It’s literally 2 different numbers on the 1040 (Wages and withholding).

    The problem runs deeper as well, that is, if you’re not intentionally over paying your estimates as you suggested. If someone has a refund of their withholding in excess of $3,000 – There is a bigger problem that needs to be addressed. Exemptions need to be adjusted and some tax planning needs to be sought. With the economy turning around- Imagine what a dormant $3k of excess withholding could be doing for you (I.e. Stocks, ETF, mutual funds, Real Estate fund, etc.)

    Also- Is an Amazon Giftcard in lieu of cash really worth the audit red flag?

    Instead of making an overly generous 4th quarter estimated payment; I would advise to make each installment the same amount (just above what you’d normally owe to make this scheme work) — Look at it from the IRS point of view: Why would this guy be paying so much in his 4th quarter estimates? Did he experience a bunch of income in that quarter that doesn’t match the rest of the year’s earnings? Hmmmm, it seems here that he didn’t report excess income; so why did he overpay his federal estimates? We better look into this (if it’s a material amount).

    In theory this idea is cute- but an audit, illiquid giftcards, and interest free government loans aren’t the most attractive options.

    That’s just my humble opinion though.

    • PointsAway

      Hi Chase,

      Great comment, thanks much for sharing your thoughts in detail! You’re just the kind of expert I’d hoped would weigh in. I missed the part on it only being offered on simple returns; that would seem to exclude me for one based on the array of tax forms I submit. You’re certainly right on the other factors, too, especially not wanting to raise the ire of the IRS. Holding aside that obviously critical fact, I’d say a 10% effective yield for overpaying in January for Q4 and filing in, say, March, would be a good return, but overweighting for an entire year in the hopes of a similar promotion next year would seem like a poor idea to me, given the value I place on liquidity. Anyway, thanks again for the great comment!

  2. Chase

    No problem-

    Keep up the good work. I enjoy your blog because it’s not so focused on how to earn points (which is the easy part) but rather on how to incorporate them into your travel plans while stretching their efficacy.

    I hope someday to submit my point balances to you and receive some Grade-A planning.

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About PointsAway
Casey Ayers is a consultant and entrepreneur with a passion for travel. After amassing enough miles and points to travel anywhere in the world for almost free in less than six months, he developed PointsAway as a way to help others make travel dreams big and small come true.
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