Self-employed deductibility of a free hotel room

OP used points obtained during personal travel to cover hotel costs for business stay and wants to know what amount, if any, he can deduct as a business expense.

He can deduct precisely what he PAID - no more, no less. The rest of the arguments are moot. You can fuss all you want about "but I wouldn't have paid for the personal hotel if I couldn't use the points on business" all you want. At the end of the day you have to look at what was disbursed for the activity in question - which was NOTHING. So no deduction is going to fly if its examined - and we all know that professionals cannot encourage playing the audit lottery.

So - no tickee, no laundry!

My question is why didn't he do the opposite? He should have paid for the hotel for business travel and used the points for his vacation. Then there'd be no question or issue about what's deductible.

FWIW - whenever I have to travel far (more than 2 o3 hours drive) I always try to plan some personal time in the trip, especially if I can get it for free. For example, a few years back I went to the IRS National Tax Forum in Orlando. The forum was Tuesday, Wednesday & Thursday so I intended to fly into Orlando on Monday and leave on Friday.

When I called to book the hotel I was offered a deal where I could stay from Saturday to Sunday (8 days) for the same price as Monday through Friday. The airline gave me a similar deal - the round trip cost the same regardless of travel dates that close together.

So I took my wife. The only additional cost I really had was her airline ticket. The room rate was the same and she would have eaten out here anyway (she never cooks when I'm away anyway). So for the cost of ONE additional air fare I got 8 days with my wife in Orlando - I spent T-W-R in the IRS conference so except for her air fare the entire cost was deductible. AND I got points on my card for booking the trip. Points which I later used for a personal getaway.

Work smarter, not harder, Gene E. Utterback, EA, RFC, ABA

That is not a true statement.

He would have stayed at a Holiday Inn for $99/night if points weren't an issue. However, by staying at a Hyatt for $125/night, he paid an extra $100, and got points entitling him to a "free" $200 room-night.

Or, in the more extreme case, consider what my friend did ("rented", did not occupy, a room to get points). Suppose I wanted to participate, so I called the hotel and arranged the same "stays", with my friend authorized to sign the charge for me. At no time was I ever within 500 miles of that hotel. It seems to me it would be hard to argue that I bought the rooms and got points as a free bonus.

There could be reasons of timing or cashflow. For that matter, I've seen cases where $300 of cleverly-"wasted" expenditures earned points that saved $500 of expenses.

That's quite surprising; hotels in resort areas are often more expensive on weekends.

On the other hand, Saturday to Sunday (8 days) often costs 1/3 of what Monday to Friday does.

Does it really work to deduct an 8-day trip when 3 are business?

Suppose the hotel had said "We'll give you 300 points/night for Monday through Thursday nights, and sell you Friday, Saturday, Sunday nights for 300 points each, and allow you to use the points earlier in your stay than you earned them." Would you use the same tax treatment?

Suppose the hotel had said "We'll give you 300 points/night for Friday, Saturday, and Sunday nights, and sell you Monday through Thursday nights for 300 points each, and allow you to use the points earlier in your stay than you earned them." Would that change the tax treatment?

Note that in all three cases the cashflow is exactly the same.

Seth

Actually it's so truthful that it's on the IRS checklist for auditing travel and entertainment expenses. If he wants to deduct the value of the "points", he has to first declare their value as income!

Dick

In my scenario, he (effectively) _purchased_ them. How does that provide income?

I agree, if he'd received them in return for a _deductible_ expense which he deducted in full, his basis is $0 (or the amount he declared as income). But ignore the fact that they're points; suppose I purchase a $50 Hyatt check certificate for $40 (from Costco: they really are available), and then spend $200 at a Hyatt for a business stay, paying with 4 certificates. I claim that I get a deduction for $160 for the business expense.

There's no income involved in buying or using the certificates, is there?

Seth

Dick,

Have I told you lately how much I love you?

Gene E. Utterback, EA, RFC, ABA

See how far the word "effectively" gets you with an IRS auditor. After the auditor is done laughing, don't push the issue since they don't need much of a reason to disallow all of your business expenses.

Go to IRS.gov, search on "frequent flyer", and read your way through the 10 hits.

Excusez-moi? The $160 was income and, thus, is your deduction.

Dick

No, the $160 was never income. It was a tax-free gift. (If you prefer, I'll give a bogus hypothetical: there was property that was deeded to my ancestor pre-US, eventually I inherited it, and it was taken by eminent domain immediately thereafter. No income was ever involved.)

Seth