Just a quick tip that a reader brought up… when you receive a “bonus” from a bank, it is usually going to be reported as taxable interest income to the IRS via a 1099-INT form. Since such interest is taxed as ordinary income, you should remember that you will probably owe income tax on the bonus amount multiplied by your marginal tax rate (2010). After personal exemptions and standard deductions, students or other people with lower incomes might find that they don’t owe tax anyway, but it’s still worth noting.
Another way that this can get messy is if the bank offers an item like an mp3 player, and reports the full retail value while the actual market price is much lower. Let’s say they give you an iPod that you can find for $200 but mark it as worth $300. If you’re in the 28% tax bracket, you’ll be paying $84 in taxes for that “free” iPod. Still a good deal, but only if you would really pay that much for it! (Example: iPod Touch from KeyBank.)
However, incentives from a credit card sign-up are usually non-taxable. They don’t report any income on 1099-INTs, and due to a IRS private-letter ruling, tax experts tend to view the bonuses as a rebate on the purchases you make on the cards. (Example: $500 cash bonus from credit cards.)
[Insert “The More You Know” theme song…]