Well, I know we all agree that the value varies depending on time of redemption, current market price of the award ticket, individual psychological value, etc. but in general we attribute 2 cents to a mile.

However, the perspective I am offering is to attrbute 2 cents * a person's marginal tax rate. An example will make my point clear. A short-haul reward ticket from Montreal to New York costs 15,000 miles on Air Canada. Suppose (and is generally the case) the same ticket can be bought for $300 (assume US$ = C$). However, the reward ticket then cannot be attributed the value of $300 or 2 cents. Because if I were to purchase the same ticket then I am using my disposable income which is short of my earned income by my marginal tax rate. So I would have to earn anwhere from $380 to $450 to purchase the ticket for $300. To keep the math simple, one can smoothen out the higher tax rate in certain countries or higher tax bracket for certain individuals and keep it a flat 30%. Than that automatically places a higher worth than 2 cents per mile or $300 for the reward ticket for which one would have to earn $390!

This could make some potential mileage runs on a pure cpm basis more economically feasible or at least attractive...just my 2 cents worth

An interesting angle, but don't forget to include the taxes you have to pay for your award ticket. You also need to include the RDM and EQM you won't be getting on your award ticket as an opportunity cost.

But what is the actual savings from using frequent flyer miles? I've only managed to get value of about 1 cent per mile out of frequent flyer mile redemptions; trying to use them on more expensive flights results in being blocked by capacity controls.

If you value the miles in pre-tax dollars, don't you need to use pre-tax dollars to calculate the cost of the miles:

Eg. It costs you $300 post-tax $$ for a MR that brings in 20k miles = 1.5 post-tax cents/mile

Or you could say $390 pre-tax dollars for the same MR = 2 pre-tax cents/mile

Trying to figure out the value of the mile is pointless discussion as numerous previous threads have pointed out on FT.

The real value depends do you use your miles for short haul or long haul flights in Y/C/F and how much you would be willing to pay for the flights in real cash.

Any economic-equivalent comparison is in post-tax dollars - you can't change your frame of reference just for fun.

If you believe your poutine for lunch actually "cost" you $7.14, instead of the $5 bill you handed over, and you make the same conversion for every item with a monetary value, then you can assume miles are worth 2.86 cents. I suspect very few people actually do this.



And in your original calculation, with a 30% tax bracket, the actual pre-tax cost is $428.57. It's not cost*(1+MTR), it's cost/(1-MTR).

This topic is very interesting to me as I won a contest recently with the prize being 1 million worldperks miles. The sponsor of the contest placed an ARV of $25,000 on the miles. Recently I noticed another contest from a different sponsor with a prize of 3 million miles with an ARV of $45,000. When I file my taxes next year...what should I use as the real value... The IRS does allow you to prove that the value of a prize is less than the sponsors 1099 shows....Any thoughts before I contact a tax attorney??

Sure does! You can pay up to $390 for a mileage run that will yield enough redeemable miles to get that reward ticket - provided, of course, that you can pay for that mileage run with pretax dollars.

I think you are confusing yourself in one or more ways here:

Will you earn those miles with the expenditure of pre- or post-tax $s using a credit card and/or from flying on a ticket bought with pre- or post-tax $s? You are gaining if the answer is pre-tax $s and you use the miles for personal, non-business purposes, since then your government is subsidizing your acquisition of the miles, reducing their cost to you. If instead you spent post-tax $s to accrue the miles in the first place, then there is no reduction in cost or subsequent gain in value where the miles are concerned. The miles are, and will always be, worth however much you would have otherwise spent for what you redeem with them, with appropriate discounts limitations on how and when awards can be claimed/used.

And about the "how and awards can be claimed/used" - is it 15K for a "saver" type award or a "standard" one? If a "saver" award, with its restrictions, is not the same as a less restricted purchased fare, so it may not be 15K is the equivalent of $300.

Congratulations on your win! I wish my tax problems were more like yours.

You probably don't need a tax attorney right now. Perhaps your first step might be to find an expert who can provide a creditable, written basis for why your miles worth less than the 1099 says. FT may be the perfect place to find that expert.

You might want to attach the expert's valuation opinion to your tax return when you file.

Congratulations on the win. But if with federal and state taxes, you are in a 40% bracket, it may not be so great a thing. $10K out of pocket now in taxes to bank 1M WorldPerk miles for future use subject to the restrictions on them? I seem to recall someone declining such a prize because they felt that the tax obligation would effectively cancel the benefit.

Perhaps the carrier will go beyond the 1099 and explain to you the basis for that $25K, or 2.5 cpm, valuation. I expect it is somehow consistent with the "retail" value as established by what some people pay directly to purchase miles. But you can be sure they sell miles for much, much less to credit card issuers (wholesale value?) and carry outstanding miles on their own books as a much, much, much lesser liability that 2.5 cpm. In any event, if they will tell you something, then it may be useful when you challenge the value as too high.

Within the past 3 months or so, the Wall Street Journal had an article about Air Canada and its FFP. That had something in it about the cost to the airline of mileage. And while their valuation for bookkeeping and reporting purposes may be a different matter, I still think it might be helpful to you to have that sort of "inside" information when making your case for a valuation of <$25K.

I expect people are selling or trying to sell miles/awards on E-Bay, and that too may be of some help in setting the value. Document what you could buy/sell miles for from "alternative" sources as further proof of value if it will suport a less then 2.5 cpm, as I expect it would.

I keep it simple: everything after-tax. If I'm ever going to voluntarily buy an FF mile (e.g., acquire one other than by taking a flight where there is no cheaper-but-otherwise-equal non-mileage-earning option), I'm buying it with after-tax dollars. Obviously I'm buying my personal paid flights with after-tax dollars. So I don't know why I'd allow pre-tax dollars to complicate the equation.

The reality is that, for the most part, I don't voluntarily purchase FF miles anymore. I've bumped all of my airline credit cards. I don't use airline partner vendors for shopping unless absolutely necessary. I don't buy airline miles from rental car agencies because I take Hertz Points instead. Right now, I'm mainly buying hotel points (from Amex and Chase), so I am very concerned about the value I am getting from those.

So since my accrual of FF miles is almost exclusively from flights on which there is no equivalent-but-cheaper way to fly without earning miles, I am somewhat less concerned about their specific value. It varies so much trip-to-trip anyway, and sometimes I burn 'em for international upgrades, for which I have no basis against which to compare because I've never actually bought a J seat with my own money to begin with.

So....I look at my most recent redemptions for trips I both (a) knew I would take regardless of whether I had miles, and (b) redeemed miles for a coach award, which is the class of service I would always buy with my own money.

- 15k UA to Denver on dates for which the lowest fare was $288 all-in.
- 35k DL to Belize on dates for which the lowest fare on any airline was $818 all in, but I had to pay about $55 per seat in taxes on this one.
- 25k NW to DTW, lowest nonstop fare was $475 all in, and it was a short trip for which hassling with WN on a Chicago connection wasn't a good option.
- 25k AA to YVR, lowest fares on any airline were in the high-$400's.

All of these were in the past six months. So I'm pretty comfortable with the fact that I get around 2 cents a mile when I redeem them.

The catch is that the miles sit in my account for a while before I redeem them. So in terms of buying them, I'd never spend even 1.5 cents these days. Those Delta miles were earned in 2000. Those NW miles are from the late '90's. AA and UA miles are fresher - I earn & burn more frequently there - but still they were 2-3 years old.

So it's complicated. Maybe I'd buy for a penny knowing I could redeem for 1.5 a couple years down the road. But these days, I like hotel points a lot better because I can more easily tie them straight to known values and redeem them within months of earning them.

As another angle, I could consider the extra hour of two I spend phoning CSR's trying to find an airline that will let me use miles despite the annoying capacity controls. If I figure out how much money I make in an hour and tack that on, the miles start to lose value.

I see that UA is trying something new - where you get 1 penny for a mile and you can use them when/how you want (for their visa card holders). Still, this stinks because if the miles are only worth 1 penny apiece at redemption time, I would not really bother. This is just about as bad as the "easy pass" or "rule buster" or whatever each airline calls it when they charge you double since you are not within their secretive capacity controls.