Are gift cards considered income?


Around the holidays, there are quite a few gift certificates sold. Technically, once it’s sold, you’ve got the money in your pocket, but is it considered revenue on your books?

Since a gift certificate is essentially a promise to do work or produce a product in the future, it’s considered a liability (similar to a debt owed) on your financial statements. Once you perform the service or hand over the merchandise they purchased with the gift certificate, you take that amount out of the liability bucket, and move it into your revenue bucket.

Lucky for us, the accounting world likes to be complicated. There are different rules for financial statements and the info that gets put on your tax return.

The IRS says that you can hold off on recognizing the inflow of cash from gift cards sold (shocking, I know!) for the year they are sold, but the amount must be recognized in the following year.

The best way to track this is with a good, old-fashioned spreadsheet. I know that for some creatives out there, the mere thought of having to open Excel stresses you out, but the good news is that it’s fairly simple!

  1. Record sales of gift certificates (track date of sale and the amount).
  2. When a gift certificate is used, track the date and amount used.
  3. At the end of the year, the amount of gift certificates used will be included in your revenue.
  4. Any left over needs to be included in the following year, whether it gets used or not.

Now you’ve probably learned way more than you ever wanted to about gift certificate income recognition!

IRS Code 414: Retirement Plans and Your Taxes

IRS Code 162: What Is an Ordinary and Necessary Business Expense?


Amy Northard, CPA

The Accountant for Creatives®
+ taxes + bookkeeping + consulting
+ Hang out with me over on Instagram!

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