Here’s a CEO who spent 1.83 million American Express Membership Rewards points to cover a surprise tariff bill at the guitar pedal manufactuing company he runs in Oklahoma Cty. That’s how many points were required to offset the nearly $11,000 levy, paid with his credit card. American Express typically lets you spent points at 0.6 cents apiece for statement credits.
When a tariff bill for almost $11,000 arrived without warning, Robert Keeley reached for one of his last financial lifelines and cashed in 1.83 million American Express reward points to pay it.
“It’s like a needle pin holding back a crack in the dam,” said Keeley, who runs Keeley Electronics, a guitar-pedal manufacturer with 35 employees in Oklahoma City.
I have three reactions here.
- Unexpected expenses wreak havoc on a business. They mean less global trade which means less economic growth, and no serious economist supports them in the manner being pursued by any government in the world (there are theoretical edge cases, rarely reflective of real world conditions, where some suggest particularly tailored tariffs could be beneficial).
- This is an absolutely terrible redemption of Membership Rewards points. When you’re backed into a corner you’re forced to make bad decisions. I’d like to think I’d never redeem my seven figure balance of Membership Rewards points at just 1 cent apiece, let alone 3/5ths, but if you’re trying to save your business and have few options it’s something to consider.
- It’s especially a shame because these were points from business spending that amount to untaxed funds, it’s converting personal funds for business use without any equity or debt in exchange, and the business doesn’t even get to write off the expense because they lowered the mount of the card payment due.
Let me explain why small business rewards are so valuable – it’s not just points from spending but de facto (if not de jure) it’s untaxed income from a business.
While not entirely on point to the situation of small business credit card spend-based rewards being converted to personal use, the general IRS guidance is (2002-18):
[T]he IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel. Any future guidance on the taxability of these benefits will be applied prospectively.
This relief does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits, or in other circumstances where these benefits are used for tax avoidance purposes.
Formally, the IRS could say that a business’s rewards converted to personal use constitutes taxable income, that the business really shouldn’t be deducting the full amount of their purchase when there’s a rebate, or even potentially both depending on the form of the business.
As a practical matter doing the work to tie millions of small rebates and forcing businesses to adjust every deduction would be costlier than any extra tax collected. There would be an uproar on the part of business owners and, as a result, politicians. And remember that since the George W. Bush administration federal employees have been able to keep their miles from business travel – and that means IRS examiners, too!
That said, when you push the envelope and move beyond a vacation a year into structured and systematic use of a business to convert points at scale while avoiding taxes you’re forcing the IRS’s hand and taxpayers have lost.
Furthermore, resellers who don’t adjust the cost basis of their inventory for rebates are understating their income – though this is not something especially likely to be audited.
Meanwhile it’s such a strange time to try to protect American jobs when unemployment has been historically low and employment has shifted into higher value, higher paying sectors – although the labor market has softened since tariffs were announced. Stock markets have recovered, though, once the President removed the gun from our own economic head and because far we’ve kicked the can down the road towards re-imposition of the worst tariffs.
(HT: @crucker)
Well, regardless of the tariffs (also bad), that business owner is not good at business or the points game. Yikes.
Shoulda gotta the Schwab Platinum, and could’ve at least redeemed for 1.1x (formerly 1.25x). 0.6 is a pittance.
It begs the question why the CEO didn’t have an emergency cash fund for personal expenses that could cover this. If he’s not saving personally enough to cover it (and recoup it via equity, debt), that’s perhaps a bigger no-no than frivolously spending his AMEX MR as he did.
I going to go out on a limb and guess that as a small business owner in Oklahoma, Keeley has probably voted for Trump 3 times now. Trump made no secret about his plan to put high tariffs on everything, so Keeley got what he wanted. Personally, I’m fine with people voting for what they want, just don’t bitch about it when you get it.
BooHooo
Every able-bodied unemployed American male displaced by Chinese slaves is crying boo-hoo……
I’m with BigTee! Thank you.
It’s the impact on the unemployed plus underemployed is where the rubber meets the road.
Unreal. Small Business owner should have made his purchases on an unlimited 2% cash back credit card…he would have had easily earned at least $20K+ in rebates for cash reserves/working capital needs, plus another 3-4% in interest income.
It’s not just the tariffs that are horrendous policies. This is also a precursor to all the 3x voters for Dear Leader who are about to lose all government assistance (no more SNAP, Medicaid, etc.) if that BBB passes (which it likely will.) Just like the Latinos who voted for the guy thinking the leopards wouldn’t eat their faces. We warned y’all. It’s always been a class war disguised as a culture war. If you’re not rich, you’re going to suffer. On, the irony that his supporters are cheering on their own demise. Sad!
@Walter Barry — ‘Thank you for your attention to this matter…’
@1990
Those people are part of the parasite class that will “their assistance”. They don’t work, so they aren’t getting anything for free.
Most of the most pro deportation people are Latinos. It’s pretty racist that you automatically see a Latino and think illegal.
President Trump is giving exactly what we want. the BBB will be the final nail in the liberal left. Good riddance.
I would submit that if you have 35 employees and $11k is so critical to your temporary survival that you’re going to burn points to cover it, you should just go out of business now.
“Every able-bodied unemployed American male displaced by Chinese slaves is crying boo-hoo” That’s a lot of words to say no one cryied.
I’d love to see how much support tarrifs have amount academic economists. My suspicion is near zero; they tend to be libertarian after all.
Using tariffs as a negotiating tool to reduce tariffs levied by other countries against US products will pay off down the road, but they do hurt in the short run. His redemption rate was poor, but at least he had the points instead of putting the bill on a credit card.
@Danin “Using tariffs as a negotiating tool to reduce tariffs levied by other countries against US products will pay off down the road, but they do hurt in the short run.” That’s pretty much the only valid use of tariffs, to get others to agree to none. But, the Trumpster rhetoric on this, that it will move “good” jobs back to the US, makes me think he thinks tariffs might be good in general.
@Walter Barry — So, it’s the ‘poors’ and ‘disableds’ that are the parasites, not the billionaires that exploit their workers, pay them less than a living wage, and force them onto these programs to begin with? Yeah, I follow the money, and know not to ‘punch down.’ It’s a class war, bud, and unless you’re a centi-millionaire, you ain’t ‘rich,’ son, and we aren’t ‘winning.’
As to racism and immigration policy, have you become ‘woke,’ sir?! If so, welcome to ‘the Resistance,’ bah! I doubt your transformation, though, because you gave away ‘the game’ referring to anyone as ‘illegals,’ since, if you actually cared, you’d refer to those without legal status as ‘undocumented.’ Human beings are not ‘illegals.’ That’s inherently dehumanizing.
Now, if you’d like to seriously reform our nation’s immigration policies, perhaps, revisiting the bipartisan, comprehensive reforms introduced in 2024 would be a good start, but based on your final comments wishing the elimination of your perceived political opponents, I highly doubt you wish for any good faith solutions to anything here.
Wow a company with 30 employees doesn’t have $11k in the bank? I’d be really nervous if I worked there. Maybe they need to diversify into products made overseas that are in demand here.
@Frank Jessup — Sounds like a company that’s about to go bankrupt anyways…
Poor fellow! I feel so badly for him. Gary is this really a story? C’mon.
I’d love to know who he voted for.
The tariffs can still be deducted. One deducts the expenses charged to the card, not the credit card payment itself. I guess we shouldn’t be taking tax advice from a travel/points blogger.
Congrats to the biased “author” for bringing his left-leaning politics into this. Now you have multiple comments of going back and forth. Maybe next time, in a travel blog, you should wrote about the topic at hand and leave your TDS on the sidelines?
IRT the business owner, he doesn’t sound like he knows what he’s doing unfortunately.