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do I really not have to include UA miles/awards on my tax return?

do I really not have to include UA miles/awards on my tax return?

Old Apr 18, 17, 8:32 pm
  #1  
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do I really not have to include UA miles/awards on my tax return?

during 2016, I went on a UA mile-burning binge and cashed in most of my UA miles. off the top of my head, all the free award tickets that I have redeemed add up to be about $49,000.(if I had to buy the first class tickets for the same seat on the same date, at time of booking of the said awards).

there's nothing about it on UA's website, not as far as I can see...

just checking.. my longtime CPA said no, but I just realized that he wasn't that bright.

I couldn't care less if it's taxable or not... I just want to do whatever the law requires, nothing more and nothing less.
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Old Apr 18, 17, 8:40 pm
  #2  
 
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No tax consequences. US tax law treats the event "buying a ticket with frequent-flyer miles" as an action which reduces the purchase price of the ticket, kind of like using a coupon.

Your frequent travel (or credit card purchases or whatever) earned you a bunch of coupons which you redeemed; this is currently not considered income, neither when you receive the miles nor when you use them.
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Old Apr 18, 17, 8:40 pm
  #3  
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Prefacing with.. I am not a lawyer, I am not a tax professional, and the Internet is a terrible place for tax advice.

Frequent flyer miles, credit card rewards, etc. are considered to be a rebate on a purchase and as such are not considered taxable income.

The gray areas are: (1) if the miles accrue to an account or person different than that which paid for the travel [e.g. individual versus business], for which the IRS has issued guidance they'd rather not deal with it and won't penalize taxpayers who do not report it; and (2) if the points are convertible into cash or a purchase rebate directly, and were produced as part of deliberate activity that would generate net income (cf. manufactured spending), for which I am not aware of any IRS rulings and I'm not plugged in enough to the MS community to know if they report that as income.
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Old Apr 18, 17, 8:46 pm
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[Moderator edit.]

In any case, I've never reported mileage awards on my tax return. I'm sure there are others here who are actually qualified to answer your question, but your best bet is to ask an accountant. [Moderator edit.]

Last edited by Ocn Vw 1K; Apr 18, 17 at 9:08 pm Reason: Per FT Rule 12.1, first two sentences.
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Old Apr 18, 17, 8:56 pm
  #5  
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UA will issue a 1099 if you earned enough miles in ways that require a tax assessment. They use a 2cpm rate for the 1099 valuation.
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Old Apr 18, 17, 8:56 pm
  #6  
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Originally Posted by ShutteLag View Post
during 2016, I went on a UA mile-burning binge and cashed in most of my UA miles. off the top of my head, all the free award tickets that I have redeemed add up to be about $49,000.(if I had to buy the first class tickets for the same seat on the same date, at time of booking of the said awards)
As was already said, the IRS doesn't currently classify frequent flyer miles as income, any more than they would a coupon. Consider your earnings from each flight as a partial rebate -- i.e., a reduction in the purchase price of the item. Similarly, credit-card cash back is not taxable either.

Furthermore, if it were taxable, the majority of the tax liability would have occurred when the miles were earned, not when they were redeemed. You'd need to establish a market value for UA miles as a "currency," and figure out what you had "earned." That would establish the tax basis; then, upon redemption, you would report only the difference between the tax basis and the value of the redemption -- basically, just like any other security. So, the worry would be less about reporting the redemptions in 2016 than amending your earlier returns to show the additional "income." :-)

Happily, it's not currently an issue.

Originally Posted by mduell View Post
UA will issue a 1099 if you earned enough miles in ways that require a tax assessment. They use a 2cpm rate for the 1099 valuation.
Correct -- the winners in the Billion Mile Giveaway would have gotten 1099s. I can't think of too many other scenarios where miles would be taxable (besides the 7.5% excise tax applied to mileage purchases, which isn't an issue here). Mileage and ETCs given as goodwill compensation for flights, or bonus mileage given for promotions, would both seem to fall under the 'discount / rebate' view of the world.

Last edited by jsloan; Apr 18, 17 at 8:59 pm Reason: Add response
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Old Apr 18, 17, 9:04 pm
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Nope, not taxable. The IRS considers miles earned a rebate on the original purchase and therefore not subject to tax. The assumption is you paid taxes on the cash used for the original purchase, and the rebate is basically the same as getting a cash refund.

Source: CPA with 30 years experience in taxation.
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Old Apr 18, 17, 9:14 pm
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The IRS spent lots of time over the years on the issue but has never really pushed to tax. It was an active topic some years ago. If you get a 1099 in a special situation, that is different.

The IRS was looking at situations like where you took a tax deduction for the travel, or it was paid by your employer. How to account for the item was also a problem.

If you ever talk to your Member of Congress they are concerned about their frequent flyer miles, and as a group would unlikely push legislation to clarify that miles are taxable.
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Old Apr 18, 17, 9:21 pm
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From the IRS website: https://www.irs.gov/pub/irs-drop/a-02-18.pdf
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Old Apr 18, 17, 9:27 pm
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I can recall times I wanted to deduct the value of an award flight, but that's typically no no as well. So you don't get taxed on miles to earn, but can't deduct miles you spend even for work.
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Old Apr 18, 17, 9:29 pm
  #11  
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Originally Posted by exerda View Post
I can recall times I wanted to deduct the value of an award flight, but that's typically no no as well. So you don't get taxed on miles to earn, but can't deduct miles you spend even for work.
And neither are miles "donated" to charity organizations / purposes.
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Old Apr 18, 17, 9:34 pm
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Originally Posted by ntr91 View Post
Nope, not taxable. The IRS considers miles earned a rebate on the original purchase and therefore not subject to tax. The assumption is you paid taxes on the cash used for the original purchase, and the rebate is basically the same as getting a cash refund.

Source: CPA with 30 years experience in taxation.
what if the rebate far exceeds the original purchase price?

don't know if it can happen today, but back in my days, I flew 8 shuttle flights per day for a whole week.. spent about $1395(1989 dollars) and redeemed the miles for 7 first class roundtrip tickets between JFK and Europe. Don't remember how much 7 first class tickets to Europe would have cost back then, but I'm sure it was a lot more than $1395.

I'm saying it now because I'm pretty sure they can't go back that far and collect taxes, right?
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Old Apr 19, 17, 1:22 am
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Originally Posted by ShutteLag View Post
what if the rebate far exceeds the original purchase price?
It still doesn't matter, as you can't reduce the total cost of your revenue plus award flights below zero. If one could establish legal intent on behalf of the airline other than offering a rebate to incentivize business, perhaps. But in your case, definitely still a rebate.
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Old Apr 19, 17, 4:19 am
  #14  
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Originally Posted by ShutteLag View Post

.. my longtime CPA said no.
Correct.

Feel better?
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Old Apr 19, 17, 4:59 am
  #15  
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Originally Posted by ShutteLag View Post
ff the top of my head, all the free award tickets that I have redeemed add up to be about $49,000.(if I had to buy the first class tickets for the same seat on the same date, at time of booking of the said awards).
Those seats would not have been worth anything near as much. They come from a completely different inventory than what you were trying to price up. It's always a bit amusing to see these bloggers tell people that they got a $100,000 RWT first class ticket for free...
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