Award Miles - Unreimbursed Business Expense?

[ETax847]

I have a client who booked 2 flights for business using his award miles. Is this considered an unreimbursed business expense?

[Jack from Ohio]

My feeling is he can deduct his cost of the award miles as 2106 expense.

[BulldogTom]

Did he take the rewards miles in as taxable income at some point? If not, he can't deduct.

The concept is that the previous flights or charges that he made on his credit card were discounted by the rewards that he earned, so if they were used as a deduction, they would have been overstated by the value of the rewards earned. So when he uses those rewards for another deductible flight, the value has already been deducted.

Here is a simple example. Executive X takes 20 business flights during the year. He properly deducts the cost of those flights. The credit card company rewards him with a free flight, which he uses for business. The 20 flights actually were discounted by the amount of the 21st flight taken, so the cost has already been deducted when those 20 flights were deducted as business expense.

Does that makes sense? I know it is a very simplified example.

Tom

Hollister, CA

[ETax847]

I have read conflicting things on this. The client is looking to treat this as a Sch A unreimbursed bus expense. I found the following indicating the opposite:

"The way the Internal Revenue Service sees it, you did not pay anything for that ticket so there is no deductible expense. "There are no portions of Section 162 or case law that appear to justify that deduction," says CPA Paul Conway.

Had you paid for your ticket with cash, it would be a different story, and that's where Section 162 of the IRS Code comes in. It covers business expenses, including what items are deductible, required documentation, business nature of the expense and overall reasonableness of the expense."

Read more: http://www.creditcards.com/credit-card-news/award-flight-business_trip-tax_deductible-1433.php#ixzz2tDbuxRbA

Edited February 14, 2014 by kcjenkins
edited to remove the ad

[ETax847]

Thanks Bulldog Tom. That definitely cleared things up!

[Mr. Pencil]

the cost has already been deducted when those 20 flights were deducted as business expense.

In the original post, there was no suggestion that the award miles derived from business flights.