Promotional Frequent Flyer Miles Are Being Taxed?

A lot of us have taken advantage of the frequent flyer miles promotions that airlines offer through their credit cards and other types of promotions.  But now it seems that their card distributor, Citibank, is hustling customers through a tax “scam.”

Time Magazine reported a glitch in Citibank’s business practices and are alerting others to what some depict as a “scam” to write off more taxable income for their company by including frequent flyer miles in their credit card promotions.  They value those miles at approximately “2.5 cents” per mile.  That is money in the bank for them, according to Smarter Living, a website that offers e-mail alerts with a bevy of travel tips and discount information.

Their expert said:

“Citi probably pays the airline about $.01 per mile for the credit. Previously, Citi would write off that $.01 per mile as a cost offsetting other credit card profits. But if Citi arbitrarily values that credit at $.025 cents per mile, it can write off the full “retail” value of $0.025, thereby more than doubling its write off. Say Citi gives 50,000 enrollment bonuses to 10,000 customers, for example, for a total of 500,000,000 miles. On a cost basis, Citi could write off $5 million. But on the inflated value, Citi can write off $15 million, or $10 million more than its true cost, without actually spending another penny.”

If you haven’t already received a 1099  in the mail for miscellaneous taxable income look for it now if you’ve taken advantage of what you thought were free promotional miles from Citibank when you signed up for their card or as a Citibank cardholder you opened a “deposit account” that came with what you thought were free miles.

Read Smarter Living’s expert advice here.

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