Posted on 03/07/2021 3:41:19 PM PST by DUMBGRUNT
Konstantin Anikeev, an experimental physicist, assembled everything he needed for an inquiry far outside his field.
His materials included American Express cards, the government’s view that credit-card rewards aren’t income, and his own willingness to spend time buying gift cards and money orders. He pulled the concept from personal-finance websites: Exploit the difference between unlimited 5% rewards and lower fees on gift cards and money orders.
“If one has a theory, one can test it experimentally. Some are easier to test,” Mr. Anikeev said. “Others require a Large Hadron Collider or something like that. But this one was a bit more accessible.”
It (mostly) worked.
Mr. Anikeev’s financial-optimization plan in 2013 and 2014—including $6.4 million in credit-card charges—led to an Internal Revenue Service audit and a finding that he and his wife had more than $310,000 in income that should have been taxed.
So Mr. Anikeev used his AmEx card to buy prepaid Visa gift cards at grocery stores, routinely stopping during his commute and purchasing the maximum allowed per day at a store. He often used the gift cards to buy money orders, then used the money orders to make deposits in his bank account, then used that money to pay his credit-card bill.
“He’s a very mathematical, brilliant person,” said his lawyer, Mr. Sklarz. “And this was just something he thought was fun.”
(Excerpt) Read more at wsj.com ...
Yeah.
It’s like free credit, minus the fees.
Said he made $300K. I’m not sure over what time span.
*He pulled the concept from personal-finance websites: Exploit the difference between unlimited 5% rewards and lower fees*
I can see where this could be considered short term capital gains.
“George has been very vocal throughout his life about his inspiration for “Taxman.” “I had discovered I was paying a huge amount of money to the taxman,” he once explained in interview. “You are so happy that you’ve finally started earning money – and then you find out about tax. In those days we paid nineteen shillings and sixpence out of every pound (there were twenty shillings in the pound), and with supertax and surtax and tax-tax it was ridiculous – a heavy penalty to pay for making money…It was, and still is, typical. Why should this be so? Are we being punished for something we have forgotten to do?...That was the big turn-off for Britain. Anybody who ever made any money moved to America or somewhere else.”
http://www.beatlesebooks.com/taxman
I’d have to read further, but it doesn’t sound like they taxed him for the rewards points per se, but on the cash generated between the 5% float between the cash back and the purchase of money orders.
I did simar things buying good and silver. I got a notice that all purchase like that will now be treated as a cash advance with no rewards.
“I’d have to read further, but it doesn’t sound like they taxed him for the rewards points per se, but on the cash generated between the 5% float between the cash back and the purchase”
Yes.
Reward value minus gift card and money order fees. That’s what it sounds like.
Sounds like the original PONZI scheme without all the investors.
https://en.wikipedia.org/wiki/Ponzi_scheme
I still don’t understand...the article seems to say using gift cards to purchase money orders gets you rewards? you get rewards from using gift cards ?
Exploit the difference between unlimited 5% rewards and lower fees on gift cards and money orders... Mr. Anikeev's financial-optimization plan in 2013 and 2014—including $6.4 million in credit-card charges... Anikeev used his AmEx card to buy prepaid Visa gift cards at grocery stores, routinely stopping during his commute and purchasing the maximum allowed per day at a store. He often used the gift cards to buy money orders, then used the money orders to make deposits in his bank account, then used that money to pay his credit-card bill.
Sounds like compensation for some very hard work that he did for years.
Vonnegut was a great author.
“I believe the IRS announced several years ago that they were not going to treat airline frequent flyer rewards as income. “
On my experience, I dont think so. I fly into Vancouver due to my job in the biz more than a few times every year, and racked up the miles quick for the rewards. so far, the taxman hasnt contacted me in 10 years LOL
Interesting and I see how it works. Too bad they ruled it income but at $300k he’s still up around $200k after taxes. Not bad for a “fun” side hustle outside of his main profession.
ping - taxable credit card rewards
I wounder how much time it took and what his effective hourly rate ends up being. And if the government wants to now classify it as income seems fair he might want to report all of the expenses involved. Probably end up with IRS being owed nothing, maybe enough expenses that he might be owed a tax refund?
The article is here:
Says it was a two year time span.
So $150,000 per year.
If he spent two hours five days a week.
150,000 / 520 = 288 bucks per hour.
Just a SWAG, but that’s WAY better than driving Uber or Shipt.
“I wounder how much time it took and what his effective hourly rate ends up being. And if the government wants to now classify it as income seems fair he might want to report all of the expenses involved. Probably end up with IRS being owed nothing, maybe enough expenses that he might be owed a tax refund?”
He has a profession and did this in his off time. It’s doubtful he spent more than 25 hours a week at it. That’s 1300 hours if he did it every week. That’s $230 an hour before taxes. Even after taxes $200k or so is huge for a side gig. And yes, he should be able to write off a lot of mileage and the money order fees. That would make little difference though.
I wonder how much of this one could do before drawing the attention of the IRS. I like the concept and would just pay the taxes, might try it.
“I still don’t understand...the article seems to say using gift cards to purchase money orders gets you rewards? you get rewards from using gift cards ?”
Rewards are from using the credit card to buy gift cards.
He bought gift cards (for a fee) and used gift cards to buy money orders (for a fee) and put the money in his bank account and paid the credit card from his bank account.
He nets the reward minus fees.
That’s how I understand it.
He used his 5% cash back credit card to buy supermarket gift cards. He gets 5% back on all gift cards he purchased (from the credit card company). He then bought money orders from the supermarket with the gift cards. There is a small fee involved say 1%. He used the money orders to pay back the credit card. He made net 4% on the total money spent for the month and his credit card balance was paid off.
In summary, just by rotating the money through: credit card buys gift card, gift card buys money order, money order pays back credit card, gain of about 4% on the credit limit of the card (assuming you had the where with all to purchase that many gift cards and money orders).
Why aren’t more people doing that? Sounds like a money maker.
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