thread Re: Are gift card REDEMPTIONS being counted as income??? in Archived Discussions (Read Only)

Are gift card REDEMPTIONS being counted as income???

SMW — Fri, 29 Mar 2019 23:47:01 GMT

Are Gift Card REDEMPTIONS being counted as income? It looks like the sale and redemption is part of my Net Income total.

Gift Card Reporting

ThreadsofHope — Mon, 13 Nov 2017 22:44:05 GMT

I am new to square gift cards. I had my first transaction of $500 worth of gift cards today. I went to check reporting and noticed that gift card sales do not contribute to gross sales. Any other POS system I have ever used has added gift card sales into gross sales that same day. Do gift card sales contribute to gross sales when the customer uses the card for purchases? I'm very confused. It makes more sense to add that money to sales now when i have it not later when they spend it. What if they lose their card? I just want to know whether I can add those gift card sales to my own files now or are they going to be calculated into gross sales later causing my numbers to be off?

Re: Gift Card Reporting

EJ_ — Thu, 16 Nov 2017 20:31:39 GMT

Hi @ThreadsofHope

This is a great question that can cause some confusion when selling/redeeming Square Gift Cards.

The sale of a gift card is recorded separately from your product sales. Your gross and net sales will exclude gift card sales since gift cards aren't necessarily a product.

Your Total Collected report will reflect all amounts taken, including tax, tip, and gift cards, so that would be a better report for you to reference.

Re: Are gift card REDEMPTIONS being counted as income???

ryanwanner — Tue, 26 Mar 2019 20:23:32 GMT

Yes Gift Card redemptions are counted as income, you'll just not see any funds transferred.

When a customer loads a Gift Card, it is not counted as income, but you do get the funds at that point.

In an ideal world, all gift card funds you receive would go into a separate bank account. As the cards get redeemed, you'd move the funds from the GC account into your operating account. This way, in case of the closure of your business, you'd still have the GC funds set aside to return. Those funds are technically on your books as a liability until the cards are redeemed. Of course, finding a small business that can run that way would be tough... 😞

Re: Are gift card REDEMPTIONS being counted as income???

SMW — Fri, 29 Mar 2019 23:37:22 GMT

As we close 2018 tax season which transaction, the sale or the redemption, is counted as taxable income? In the Sales summary by month reports Square is generating it looks like GC sales are counted as income. Im even more confused because the GC redemptions are also listed where form of payment is broken down. Who can help me understand this?

Re: Are gift card REDEMPTIONS being counted as income???

GlassJudy — Wed, 27 Mar 2019 15:17:40 GMT

@ryanwanner's answer was spot on. Typically, sales of the actual gift card are not considered income, only the redemption of the card is income. If Square is showing both transactions as income, something is wrong and you need to contact their customer support to get it figured out. As far as the tax issue, make sure that the sale of the GC is non-taxable.

I hope this helps and you get this straightened out. No one enjoys dealing with the IRS.

Re: Are gift card REDEMPTIONS being counted as income???

SMW — Fri, 29 Mar 2019 23:33:42 GMT

@ryanwanner Ryanwanner Do you use Squares sales summary reports by month? It sure looks to me like the GC sales are counted in the income total at the end of the month. I am very confused and would love some clarification. I've tried calling Square support to no avail and am ready to switch POS systems.

Re: Are gift card REDEMPTIONS being counted as income???

SMW — Fri, 29 Mar 2019 23:45:44 GMT

@GlassJudy glassdale I agree the GC Sale should not be income...at least according to the IRS...however when I look at my sales summary by month the GC sales are indeed counted under income. Am I wrong?

Re: Are gift card REDEMPTIONS being counted as income???

ryanwanner — Fri, 29 Mar 2019 23:53:37 GMT

@SMW I do use the sales summary reports.

I think you're getting hung up on the "income" word here versus the "sales" word.

Income, yes, you do receive funds the day you sell a gift card. This will show up in deposit reports and on sales reports as Gift Cards Sold.

However, it does not show up as a sale. The best way to show this is for you to run a gift card on a day you're closed or after hours. If you have a gift card purchase on a closed day, you'll see that your Gross & Net Sales will not move from zero, but your Gift Card Sold sales will increase. You will then receive a deposit the next deposit cycle (if the card was paid for by credit card of course) of the amount of the gift card sale less Square's CC processing fees. If you want to test this after your business hours, make note of your daily gross and net sales plus your GC Sales before and after you process the card. Your Gross and Net sales will be exactly the same and your GC Sales will go up.

Only once the GC is redeemed will the sales show up in your sales report. It is up to you and/or your accountant to keep the GC Sales up to date as a liability on your books. It DOES NOT belong as an Income Item in your books: it's not.

On the Sales Summary Report, the Gift Cards are listed, yes, but only for the reason of giving us merchants a snapshot of what transpired in that time period. Imagine how utterly confused you'd be if the Gift Cards Sold weren't listed here and your deposit didn't match! 🙂

Like @GlassJudy said, though: if your Gross and Net sales go up after processing a Gift Card Purchase, then something is definitely not right with your account and I highly recommend contacting customer support before the hole gets any deeper.

I hope this helps!

Re: Are gift card REDEMPTIONS being counted as income???

SMW — Fri, 29 Mar 2019 23:57:19 GMT

@ryanwanner It WILL help once I read it ten more times. Lol. Thank you VERY much for your detailed explanation. It is so appreciated even if it is not yet understood. 🙂

Re: Are gift card REDEMPTIONS being counted as income???

ryanwanner — Sat, 30 Mar 2019 00:00:23 GMT

@SMW LOL yeah, it took a few times of banging my head on my desk to fully wrap my head around it too. 🙂 Let me know if you have any other questions!

Re: Are gift card REDEMPTIONS being counted as income???

SMW — Sat, 30 Mar 2019 00:09:45 GMT

@ryanwanner If I may ask after reading your reply, what have you found to be the best way to get a total of your taxable income either monthly, yearly or otherwise, that does not include those gift card sales?I dont see a report on Square that allows for them to be separated out.

Re: Are gift card REDEMPTIONS being counted as income???

ryanwanner — Sat, 30 Mar 2019 00:17:16 GMT

The best way that I have found honestly is to pull my income statement direct from Quickbooks. Since the GC Sales end up not in the income section of the PnL since it's coding as a liability, this is the most accurate way to get the exact numbers.

If you're using the Square reports, your best bet is to not pay attention to the GC Sold line. Like I said, it's just there as a way for you to know where all of the money is coming from.

eGift Card redeemed shows as income

PhoenixTMBWY — Thu, 27 Feb 2020 16:07:54 GMT

I schedule clients and take payments using Square's Appointments app on my iPad (and sometimes phone). I've noticed when a client redeems their eGift card to pay for a service the amount redeemed shows up as an actual "money" collected. This means the amount is added to my books twice. Once when the eGift Card is purchased, and again when the eGift Card is redeemed. Is there something I am overstepping in the redemption process that is making these charges show as money collected?

Re: eGift Card redeemed shows as income

nika — Fri, 28 Feb 2020 21:18:31 GMT

Hello @PhoenixTMBWY! I merged your question to this thread where a few sellers explain how eGift cards are tracked within your Square system.

Hope their answers help clarify a few thing for you!

Re: eGift Card redeemed shows as income

GlassJudy — Fri, 28 Feb 2020 22:08:01 GMT

Hope I'm not making things worse here, but money is not exchanged in both steps of the gift card transaction (purchase and redemption.) As @ryanwanner stated above, the sale of the card is not income, the income is only generated when the card is redeemed, and it's at THAT point that money is considered as being exchanged.

Here's what the two steps of the process look like in bookkeeping terms:

Purchase of the GC: The customer gives you an amount of money and you give them some form of a GC (card or paper usually). For bookkeeping purposes, that amount of money gets deposited in the account in which you accrue your undeposited funds (funds awaiting transfer to a different account, generally savings or checking, but it could be one of many other types.) To balance the books at this step, a liability against your business is entered in an appropriate liability account. No income is recognized at this point, as you haven't yet really sold anything of value yet - at most you've only made an even exchange.
Redemption of the GC: a customer comes in, picks out items to buy and hands you the GC. For bookkeeping, the items that the customer is buying are exchanged against the previously-created liability. Notice here, that although no form of official currency is exchanged, it's at this point that the income is created, as you have exchanged items of value for the previous money that the original customer bought the GC with. This point is the actual income-generating step (the sale of the items) although the money exchanged hands at some point in the past.

I hope this helps clear things up. The way that I finally understood it is to realize that receiving money is not necessarily the same as generating income.

Gift Card reporting

cgentes1227 — Sat, 30 Jan 2021 20:02:55 GMT

Is it possible for square to change how they report gift card sales and redemptions.

Currently on the sales summary report, a sale of a gift card shows as a net sale which is good. However when a gift card is redeemed as payment is then shows again like were collecting revenue, which we are not, we did when we sold the card the first time. the report area "total collected" should be a negative amount when a gift card is used as payment.

can this be corrected?

Re: Are gift card REDEMPTIONS being counted as income???

Jessdemahy — Tue, 06 Apr 2021 23:02:24 GMT

How does the IRS count the income? Obviously when it was first exchanged. I wish Square had this feature turned off so we can only count the GC sale when it was purchased not redeemed in reporting to make things easier and uncomplicated.

Re: Are gift card REDEMPTIONS being counted as income???

JustinC — Wed, 07 Apr 2021 20:30:02 GMT

Sorry for the confusion. Gift card redemptions are not included in 1099k forms, and therefore isn't reported to the IRS.

Only gift card sales (when they're loaded using a payment card) is reported to the IRS. @Jessdemahy

Re: Are gift card REDEMPTIONS being counted as income???

Jessdemahy — Wed, 07 Apr 2021 20:33:17 GMT

I’m referring to when money is received. Square just needs to remove the gc reporting feature for redemptions in the reporting area