Hey Folks,

So this year I decided to use miles for business trips, I was wondering if I could claim the use of them as a business expense? Theory being that Citi et al issue 1099 for miles over $600 with an assigned perceived value.

EG 70K RT to Tokyo using Citi's model 2.5Cents each (AA) would be a value of $1750...

Thoughts?

You can only effectively take a deduction for the basis you have in the miles, which in a lot of cases is $0.

If you took $40,000 of flights to get the 70K of miles, and you previously deducted the full $40,000 of flight costs, your basis in the miles is $0.

If you bought $70,000 worth of business goods and deducted the $70,000, your basis in the 70K of miles is $0.

Most people do not assign any value to the miles they earn, so their basis in the miles is $0. In the Citi example, if a person did in fact report income from the receipt of the miles he would have basis equal to the amount reported as income, and if he could show that he used those specific miles for business without compensation, he should be able to take a business deduction for the use of those miles. This is very much the exception to the rule, though, since the Citi transaction was unusual.

If you take the position that the miles are deductible at FMV of $1,750, and your basis is $0, you have to recognize $1,750 of taxable income in order to take the deduction of $1,750, which does not produce any real benefit.

There are some posts in the 1099 thread that would disagree with some of what I just posted, including one from an attorney who does take some deductions for the use of miles (though not exactly in the manner that your post suggests, or in the amounts you suggest), so you might review that thread.

Would not suggest doing it. Suspect that you would have a severe problems if you tried. The major issue being if the "company" declared all the miles as income when they were received. If they have a true "value" then they should be declared as income. You can't say that they have no value when you receive them but a value when you use them for a business.

Thanks for the replies.

The worry I had was opening the door to how much they were worth when I 'earned' them...

I just wondered if there could be a difference in terms of reporting by opting to use them as a genuine business expense rather than use them for a personal trip. However I can recognize that by doing this they would have to be assigned a basis that could be a bad thing all round.

If you are a small business, or work for a small business, there is really nothing wrong with "selling" them to your client or employer. You just have to pay the tax, but if the dollars are worth it, the tax might be worth it, also.

For instance, I used to work on a client where I often had a choice of booking an $800 ticket or using 25,000 miles. I would print out the itinerary, get reimbursed $800 and use the 25,000 miles.

My employer got $800 from the client and paid me $800. A wash for them. I reported the $800 on my tax return and paid all of the taxes, since I had no basis in the miles. Worked for everyone and sometimes I even cut the client a break by putting less than the full airfare on my expense report. Was also useful to make it appear that I have a small business when applying for business credit cards with sign-up bonuses.

This will not be acceptable to most large businesses. They are too uptight to deal with expenses that are not documented with actual payments and relying on the employee to report the correct income on his tax return. Most payroll departments are very worried about this arrangement looking like a nonaccountable plan, but most small businesses are fine with it.