Travel rewards credit cards and airline loyalty programs can garner frequent flyers a generous quantity of airline miles or rewards points that can be used to obtain an award flight while incurring no out-of-pocket expenses. If you regularly travel by air on business, this leads to the question, “Are award tickets for business flights deductible?” Read on to learn about the tax implications of using frequent flyer miles or reward points in lieu of cash for business airfare—and why it may be favorable to your wallet come tax time to reserve those frequent flyer points for personal flights.
You may know that the IRS permits you to deduct the costs incurred for legitimate business travel expenses. This includes, in addition to accommodation and half of meal costs, the cost of ordinary and necessary trips by automobile, train or plane taken from your usual “tax home” to an eligible destination of business. Your tax home is simply your usual place of business or trade, generally extending to the entire city in which your business is conducted. In addition, to claim the deduction, you must be able to show that the trip was taken for trade or business purposes, not for leisure or other personal purposes. As award flights can be used to acquire airfare purchased for a business trip, this can lead many business travelers to assume that the value of the award flight itself can later be deducted on their tax return. However, this is not the case.
Like other ordinary and necessary business travel expenses, an airline ticket purchased with cash or other out-of-pocket means is often deductible. But an airline ticket obtained with frequent flyer miles or a similar program—regardless of the market value of the ticket at the time you obtained it—still represents a zero-dollar cost to you, according to IRS Publication 17. As such, these “free ride” award flights are not considered deductible business travel expenses.
Despite not being able to claim award tickets for business flights as deductible business travel expenses, business travelers can still take heart that they were able to enjoy a flight while paying nothing in return. There is also an additional silver lining to this scenario that can allow you to leverage your frequent flyer miles or rewards points and still maximize your business travel expense deductions.
This can be done by deliberately saving your frequent flyer miles or reward points for personal flights—thereby still capitalizing on airfare savings for your leisure and other personal trips. To ensure that your business airfare is treated as a deductible business travel expense, purchase airfare for business purposes out of your own pocket so that you can deduct it come tax time and enjoy your business trip without a hitch from Uncle Sam.
For more information about deductible business travel expenses, see IRS Publication 511.