There are a couple of important things to note when selling and redeeming gift certificates to ensure that they are handled properly for tax purposes as well as legalities.
It's important to understand that gift certificates when purchased, are actually like a form of "pre-payment", and should not be treated like a product or service being sold, nor should tax be charged. When the gift certificate is redeemed, the actual product or service being purchased (if applicable) would be taxed, and the certificate would then be used as the form of payment.
You'll also want to check the laws in your area (Office of the Attorney General in your state & Federal Trade Commission) before adding an expiration date to gift certificates or gift cards, how to handle inactivity, and any other laws that may apply.
Tracking Income Received
Before selling gift certificates you'll want to first set up a category in expenses to track the income received.
- From the sidebar navigation clickBusiness Tools, then Expenses.
- From the toolbar, clickand then select Expense Category from the drop-down options.
- From the toolbar, click and in the Name field enter something similar to GC Sold and then Gift Certificates Sold in the Description field.
- To track gift certificates separately from other income and expenses, enter GC in the Unit field.
- Leave the Deductible% field blank as it is not applicable, then choose Income from the Type field.
- When finished, click to close the Expense Category form. The category will then automatically be saved and stored alphabetically within the list.
For clarity, the purchaser is the person that you are selling the gift certificate to. The recipient is the person that will be redeeming the gift certificate from you.
Selling a Gift Certificate
When selling a gift certificate, add an entry in expenses using the category created above and in the Memo field enter the purchaser's name. If you'd like to track the specific gift certificate, also include a unique gift certificate tracking number. You can then give the purchaser a physical gift certificate with the corresponding gift certificate number.
Gift Certificate Redemption
- Create the invoice under the recipient's profile.
- When finished adding items to the invoice, in the Memo field, we recommend entering a message such as Gift Certificate Redeemed as a quick reference when viewing the Account & Invoice tab of the recipient's profile in the future.
If the gift certificate amount has already been posted as a pre-payment to the recipient's profile from the optional tip above, the gift certificate amount will automatically be deducted from the invoice total. If the invoice total exceeds the gift certificate amount, the recipient will either carry an account balance, or payment can be applied directly to the invoice using either the Cash/Check or Credit Card fields.
If the gift certificate has not already been posted as a pre-payment to the recipient's profile when it was originally purchased, then enter the entire gift certificate amount in the Check/Cash payment field. If the invoice total exceeds the amount of the gift certificate, enter the additional amount being paid by the recipient in either the Cash/Check or Credit Card fields. If the invoice total is less than the gift certificate amount, they will then carry an account credit which can be used on a future purchase.