Answer to Question #254357 in Accounting for Joe

Question

My friend told me he has a friend who invested in an investment group and gets a certain percentage out of the investment. He claims his friend avoids paying taxes on the money he gets as a return from his investment by placing it on his credit card. According my friend the reasoning is that the money would show up as a negative or money owed to him not as a revenue. Is that true ?

Answer 1

Solution:

Yes, that is true.

A credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company that allows cardholders to borrow funds to pay for goods and services at merchants who accept cards. Credit cards require cardholders to repay the borrowed funds, plus any applicable interest, as well as any additional agreed-upon charges, either in full or over time by the billing date.

Therefore, any money deposited or placed on the credit card will show up as a payment on the amount utilized through the credit card.

When your credit card balance falls below zero, you have a negative credit card balance. It is reflected as a negative account balance. This means that your credit card company owes you money rather than you owing them money. Normally, this occurs when you have overpaid your outstanding balance or when the credit has been returned to your account.

 

But the question is, how will you explain the source of the funds deposited into your credit card to the IRS? That’s why the tax authorities will catch up with you and it can land you into big trouble for tax evasion since this was a gain in investment that is subjected to taxes.