Historically, the terms “discount” and “rebate” have been nearly interchangeable. While the term "discounts" has not changed, the internet has opened up a whole new, and different, usage for the word “rebate". This webpage is an introduction to the new potential arising from internet generated rebates.
Discounts
Discounts are
not real transactions since no money changes hands.
The shopper does not pay the discount and the
store does not include the discount in the accounting ledger.
Hence, discounts are not real money.
Discounts are not "saved" money. (Have you ever known anyone who actually set up a savings account using just the "discount money" they saved?)
Discounts are instantaneous. A discount gives a shopper a price reduction at the point of sale.
Discounts are generally automatic. The shopper does nothing more than make the purchase of the discounted item.
Discounts are limited. If person A tells person B about a discount, person A does not receive more of a discount.
Discounts are not taxable income, and receiving discounts cannot qualify a person as a business. Since discounts are not real money, there can be no tax consequences for receiving thousands of dollars of discounts.
Discounts do not yield tax advantages, similar to the way renting a home does not have tax advantages.
Rebates
Rebates are real
transactions since money cha
nges hands.
The shopper receives the rebate, in the form of a check or electronic
fund transfer. The store enters the rebate in the expense
column of the accounting ledger. Hence, rebates involve real
money.
Rebates can be "saved" money. If you choose, rebates can be deposited directly into a savings account, or you can receive a check by snail mail.
Rebates are realized in the future. Using snail mail, a rebate would give the shopper the price reduction in six to twelve weeks. The internet can deposit rebates in two to six weeks..
Rebates can now be automatic, because of the internet. Specific internet sites allow the shopper to qualify for rebates simply by making purchases.
Rebates can compound. Internet based rebate stores can issue compound rebates to person A due to person A telling person B who tells person C, etc.
Rebates are taxable income, and receiving rebates in excess of $600.00 a year from any single source can qualify a person as a business. Since rebates are not employee income, interest, dividends, or passive income, they are considered non-employee income which the IRS identifies as 1099Miscellaneous income. Per IRS regulations, 1099Miscellaneous income is taxable business income.
Rebate businesses have tax advantages similar to owning a home.
