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Posted by sharx35 on August 24, 2007, 4:46 am
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> Hi, John (and Laura).
>
> Right!
>
> The real reason that the expenditure is considered paid by the taxpayer
> when charged to the credit card is that IS paid at that time.
>
> The analogy is to a taxpayer who borrows cash from a bank and uses the
> cash to pay the merchant or other vendor. The buyer no longer owes the
> merchant anything. He owes the bank, not the vendor.
>
> We had a lengthy thread here a few years ago contrasting this situation
> with a purchase from a merchant on credit. Remember the days when we had
> "charge accounts" at Sears, Ward, Penney's, and all the other stores in
> town? At the end of the month, we got a bill from the store and sent our
> check to the store. Not nowadays. Now, we don't send any money to the
> store. We send it to the bank or other credit card issuer.
>
> On the cash basis, which includes virtually all US individual taxpayers,
> we could not deduct such credit purchases until we paid the store. But if
> we made our payment to the store before January 1, we could deduct it in
> the year of payment, even if we paid it with borrowed money.
>
> These days, we all still have a few kinds of expenses that are owed
> directly to the vendor or provider, such as doctor bills and utilities.
> And we may still have an "open account" at the hardware store, especially
> if we live in a small town. Those bills can't be deducted until the year
> when we pay them (if they are deductible at all). But whether we earn the
> money, take it from savings, or borrow it doesn't matter.
>
> Even credit cards with a store name on them (like The Home Depot) usually
> are issued by Citibank or some other third party lender. In the case of
> cards actually issued by a merchant, I'm not sure what the current ruling
> would be. But I doubt that's a problem for most of us.
>
> On the accrual basis... Well, that's not really what we're talking about
> today and it applies to so few individual taxpayers, let's not get into it
> right now.
>
> So, to the OP (Lanman?): I agree with the consensus. Create a Credit
> Card Account for each card. Record each expenditure as of the date it
> occurs (use a Split transaction as appropriate for an expenditure that
> falls into multiple categories), increasing the payable balance on the
> card. Add interest each month, if it is incurred. Record each payment as
> a reduction of the balance owed.
>
> RC
> --
> R. C. White, CPA
> San Marcos, TX
> (Retired. No longer licensed to practice public accounting.)
> rc@grandecom.net
> Microsoft Windows MVP
> (Currently running Vista Ultimate x64)
>
>> "lanman" wrote in message
>>
>>> Even for tax purposes, what matters is
>>> when the purchase was paid, not when it was made.
>>
>> I don't think this is correct. I believe that for non-merchant credit
>> cards (like Visa, Master Card, etc.) it's the date of purchase that
>> counts. Because the merchant is paid by the credit card company almost
>> immediately after your purchase, your purchase is effectively paid for
>> when you make it and you no longer owe the mercant anything ... you just
>> owe the credit card company.
>>
>> R.C. White (and others) will be able to clear this up, if I've gotten it
>> wrong.
>>
>> [And one reason, I don't I don't remember reading in this thread, for not
>> putting the credit card purchases in a payment account split transaction
>> is that you lose the true payee field. You can put the payee name in the
>> Memo field (using up some of its valuable space), but when you run payee
>> reports, you won't get those credit card purchases shown with the correct
>> payee. (It also makes Find/Replace for payees more difficult, or
>> sometimes impossible)]
>
It's good to hear a voice of reason. Whoever started the idiotic idea that
payment doesn't occur until the credit card bill is actually paid shouldn't
even be allowed NEAR a computer...or a tax return.
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