TurboTax customers lured by the promise of a 5% bonus for taking their tax return refunds on Amazon gift cards may want to think again. The deal can actually lose money for those who don’t already shop enough at Amazon to use their refund in a short time.
TurboTax Tax Return on an Amazon Gift Card: How it Works
Amazon gives its partners discounts of up to 10% on purchases. That means TurboTax makes 10% on the gift cards, and passes half of that to customers who take advantage of its tax return gift card deal. That’s a win for TurboTax. Amazon gets more business when taxpayers take their refunds in the form of gift cards, so it’s a win for Amazon. But is a tax return gift card a good deal for consumers?
Let’s say someone’s refund is $1,000. Instead of taking that in cash, they could have an Amazon gift card worth $1,050. That’s $50 they wouldn’t have had otherwise, so it’s a good deal, right? Maybe.
TurboTax Tax Return Refund Gift Card Question #1: Do You Shop at Amazon Regularly?
Do you shop at Amazon enough to spend a tax return refund fairly quickly in the course of normal, budgeted affairs?
Someone who doesn’t shop much at Amazon could end up sitting on a gift card for a long time. Instead, they could invest the money and earn interest. For example, let’s say it would take a person two years to spend $1,050 at Amazon. That same tax refund invested at 5% would be $1,100 in two years.
Some consumers figure the idea of earning interest doesn’t apply to them. They know they won’t invest their refunds, so they don’t find the interest argument attractive. However, an extra $1,000 in a checking account for bills might bump other money into savings sooner, where it will earn interest.
There’s also the danger that the gift card might get forgotten. There’s no expiration date on Amazon gift cards issued after October of 2005. In other words, the money won’t just disappear. However, in a junk drawer the money from the tax return is just collecting dust.
Alternately, someone might start shopping at Amazon to get their bonus $50. Be careful. A card is a lot less painful than cash, and the term, “gift card” can make it seem like a freebie. The money might therefore get used as an excuse to go on a buying spree. Don’t fall into that mental trap.
The idea here is, if you don’t already shop frequently at Amazon for in-budget items, then don’t select the gift card option.
TurboTax Tax Return Refund Gift Card Question #2: Will You Spend it Fast Enough?
Frequent Amazon shoppers still need to decide if they’ll use the gift card fast enough, while staying in-budget. Those who don’t have budgets can really benefit from having them. A budget is as important to finances as exercise and diet are to health.
How fast is “fast enough?” Money invested at 5% will catch up to the amount on the gift card in one year. Coincidentally, 5% is also a decent rate of return on an investment. It’s somewhere between the 2% to 4% average return from safe, conservative bonds and the 7% average return for a riskier investment in stocks.
Since money invested at 5% will catch up to the amount on the gift card in one year, we’ll take one year as our magic number. That means anyone who takes their tax refund on a gift card and spends it in one year has broken even. To really call the deal a “win,” someone would have to spend the money in less time. We’ll say six months for simplicity’s sake, though eight months or even ten would still work.
Assuming six months as a deadline, the next step is to compare the amount you’d normally spend at Amazon in six months to the amount of your tax return.
If you don’t know how much you’d spend at Amazon in 6 months, you should. Expense tracking apps can take a look back at expenses from the last year or so with relatively little effort. The apps can provide monthly or yearly totals for how much gets spent at a single retailer like Amazon. The apps can also track spending on regular items like coffee, gas, and groceries. Knowing how much is being spent in different categories is a great way to spend less and save more. Many of these apps include a budgeting feature.
You know yourself. If you’re disciplined enough to spend the TurboTax tax return money at Amazon on in-budget items in 6 months, then take the tax refund on a gift card. In that case, congratulations, you’ve made a nice 5% profit. If not, take the money the old fashioned way: in a nice, solid check.