small potatoes tax question

January 11, 2012 5:57 AM

Tax Question: I'm getting paid to do art in another city. Is it more sensible to use my travel stipend or my credit card points to pay for the flight?

I'm in the lovely position of having my artistic work selected for a workshop/presentation in another city. I am being paid a lump sum of $3,000. Of this, $1,000 is designated as a "travel stipend," though I can use it however I want. I have to travel out to the city twice -- once for a weekend and then later on for a period of weeks. I may drive out for the second part, but the first round pretty much requires that I fly.

Here are my two options.
1.) Buy a flight on Southwest. This would cost around $200.
2.) Use my accrued credit card points to get a free flight. Southwest doesn't participate in this, so I would be getting a United flight that costs about $320, or 32,000 points.

Is there a clear choice here? Obviously, if I use the points, I get to keep more of the travel stipend, but do I then miss out on any sort of tax benefit? Is there some variable I have not considered?

posted by HeroZero to Travel & Transportation (3 answers total)

Best answer: By doing this, you are valuing your 32,000 points as $200. I would only do this if there was a chance the points would expire before I had a need to use them.
posted by smackfu at 6:47 AM on January 11, 2012 [2 favorites]

Best answer: I'm often in similar situations (artist / traveling) and my rule is to pay for all my business expenses on a dedicated business credit card that accrues points (of course, I keep every receipt). I then deposit my stipend into my business checking account, and pay off the credit card. I let myself use the points for personal travel. That way, I keep my tax records clear-cut, and also get the bonus of my work expenses racking up points for my personal traveling. If you don't have a system set up like this, I'd still encourage you to keep as much separation between your art expenses and your life expenses as possible. I.e., don't waste your good airline points on a work expense that already has a preexisting budget line.
posted by mmmcmmm at 7:16 AM on January 11, 2012 [2 favorites]

Best answer: IANYAccountant, but is it correct to assume that all of the "travel stipend" is going to be considered taxable income to you, and that your actual cost of travel will be deducted as a business expense on your own taxes? If that's the arrangement, then the tax implications of points versus cash is simply that you need to establish the value of the points (in order to account for the deduction), and the cash cost of the flight is a reasonable way to do that. It's just a matter of recordkeeping and documentation, I think.

A separate question is whether the use of points for the flight is the best use of the points. It sounds like you have a card that takes the cash value of the flight and "pays" for it with points, such as the Capital One card. This type of program is separate from the "airline miles" programs. Generally, the advice on airline miles is that short-haul domestic travel is usually not the "best" use of miles, and that "better" uses are on long-haul, premium-cabin trips if that's your kind of thing. But if you're in a straight points-for-cash-equivalent kind of program, an airline trip is an airline trip, and you're not going to get a "better" value for your points.

FWIW, I believe that most of the Flyertalk mile mavens eschew straight points-for-cash-equivalent cards for exactly that reason, or instead favor the cards that offer higher multiples of rewards for the straight-up cash reward (instead of the programs that require you to spend the accrued points on airline travel).
posted by QuantumMeruit at 8:14 AM on January 11, 2012