Frequent Flyer Miles - Charitable Donation Deduction?
Many people wonder about the feasibility of donating your excess frequent flyer miles to a charity and claiming their fair market value as a charitable donation deduction.
Frequent Flyer Miles
This seems like a good idea at first glance. You are not only being charitable, but are also converting something that might not have any real value to you into cash by getting a tax break. However, this is not going to work for several reasons. The first involves the idea of fair market value. The IRS defines fair market value in regards to charitable deductions as the price that would be reached between a buyer and a seller who both have all the facts and are under no compulsion to either buy or sell.
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The problem is that the idea of fair market value here is too hazy. The airlines specifically forbid the sale of frequent flyer miles to a third party in the first place. If it is impossible to sell them, a fair market value could hardly be established. Even a comparison to regular airline rates would be hazy because the use of frequent flyer miles is subject to limitations and restrictions that can not be accurately valued.
So, if you were to attempt to use a gift of your miles to charity, you would be risking problems with the airline that issued them. At the same time, if you go ahead and work out some way to value them and go ahead and attempt to claim it as a charitable deduction, you are certainly risking an IRS audit. Even if the IRS was likely to accept your idea of fair market value, the problems and potential costs of an audit would hardly be worth the amount of tax savings.
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People keep trying to come up with various methods to get around this problem. One method is to use your miles to actually procure a ticket and then donate the ticket to a charity that has need of it. This would involve a rather close working relationship with the charity. You would have to have advance knowledge of the charities need for a ticket to a certain location at a certain time. Of course, the airlines forbid the transfer or sale of tickets acquired from frequent flyer miles also.
The bottom line of this question is that if you want to risk the ire of the airline that issued the frequent flyer miles and put them to use by helping your favorite charity, by all means do so. However, you are going to have to do this for the pure satisfaction of doing good and not to pay a little less tax. This is one of those things that you have to do out of pure charity.