This has nothing to do with American’s elimination of stopovers at North American gateway cities and distance-based oneworld awards>
I’m not talking about American making changes that reduce how we value their miles.
I’m talking about changes to how they value miles when reporting prizes for tax purposes.
There was a story in 2005 that garnered significant attention about a man who turned down a prize offering him 12 roundtrip coack tickets for two to anywhere American flew.
He won American’s ‘We Know Why You Fly’ contest. I always found that to be one of the creepiest ad campaigns, in a pre-Snowden and before the NSA was cool kind of way.
The man turned down the prize because American reported that each ticket would be worth $2200, and so his tax liability was going to be ~ $800 per ticket. The tickets expired within a year, and he quite reasonably didn’t think he’d get as much value out of them as he’d be liable for in tax.
That’s the first time I wrote about disputing the reported value of a prize.
I updated that advice last weekend as folks were scrambling to finish their taxes. It’s important because just because a travel provider says a prize is worth a certain amount, doesn’t mean it is worth that amount. And you should only be obliged to pay taxes on what something is actually worth (the price at which a transaction would occur between a willing buyer and seller).
It seems though that American may only be reporting mileage prizes now at 1.5 cents per mile at least some of the time. And if they’re doing it even occasionally, going through the dispute process we should be able to get reported prices that are higher reduced.
I believe they have. Last year when I won the MoTown the Musical Sweepstakes from American Airlines they valued the 100,000 AAdvantage miles at $1990 or 1.99 cents/mile. I have the paperwork and had to pay taxes on it.
Fast forward to the Fly Like Your Famous Sweepstakes from AAdvantage Shopping, and now the T&C list ARV of 100,000 at $1500 or 1.5 cents/mile.
Remember that the IRS does not tax miles — except when they are reported as prizes.
The lower American’s valuation, the easier it is to pay a lower tax.
With US Airways miles set to become American miles in the near-term, and US Airways offering occasionally sales for as little as ~ 1.2 cents per mile, it’s difficult to justify a higher reported price — or at least it’s reasonable to take the lowest demonstrable price.
That’s a whole lot better than reported valuations of over 3 cents per point — at which point I would decline a prize, too!