Tax season is not something most people look forward to, especially when one finds out they owe the government even more money. Last year we found ourselves in this situation. After a few unique events in 20191 disrupted our normal tax withholding patterns, we found ourselves staring at a hefty bill from the IRS at the end of the year. While we certainly don’t recommend anyone racking up a large tax bill intentionally, we decided to make the best of the situation and earn a trip to Cabo by paying the taxes with credit cards.

  1. The Payment Strategy: Split the taxes owed between business and personal, and earn two sign-up bonuses while paying with a new business and personal credit card, respectively.
  2. The Trip Plan: Fly from Chicago to Cabo San Lucas using miles earned from the United℠ Business Card, and stay at a hotel using points earned from the World of Hyatt Credit Card.
  3. The Booking Reality: Due to other trip cancellations, we pivoted and used additional points to reserve our ideal 5 night vacation as far into the future as we could.
  4. The Final Grade: B We managed to book our ideal 4 person, 5 night trip to Cabo with solid reward valuations and $720 in related fees, saving around $1,900 in cash. However, with all the other disruptions we didn’t end up using the points earned from paying taxes. The value of those points is still TBD.

The Payment Strategy

Our large tax bill made our upcoming expenses higher than normal. With both of our credit scores looking healthy, enough cash on hand to pay the large bill, and not having applied for a new credit card in a while, we decided this was a good time for each of us to try a new card.

With a significant amount of that bill due to my wife’s business income, we decided to use a business card to pay for most of the expense. At the time, the United℠ Business Card was offering an elevated sign up bonus of 100,000 miles after spending $10,000 in 3 months. This level of spending is normally well beyond the small business’ reach, but these unique circumstances made it realistic. United has plenty of non-stop flights from Chicago to Cabo. Choosing this card to cover the flight was a quick decision.

For the rest of the expense, we opted for the World of Hyatt Credit Card. At the time, it was offering 50,000 points after spending $6,000 in 6 months. The taxes would get us most of the way, and our regular expenses could cover the rest. We found multiple interesting Hyatt hotels in Cabo with various point ranges from 5,000 to 40,000 points/night. We felt good about using Hyatt points to cover the lodging.

Then we just needed to use those cards to pay the bill. The IRS makes it easy to pay with a credit card for an additional fee. They also make it straightforward to split tax payments between 2 credit cards. Using the payment to help reach the sign up bonus on our new cards (worth an estimated $1,800 using conservative valuations of 1.2 cents/point) justified paying the additional fee of $2702.

The Trip Plan

Learning from our Hawaiian booking failure, step 1 was to get passports for the kids (perhaps an obvious step for any international travel…).

Hanging with Hyatt

For the hotel, we settled on the all-inclusive Hyatt Ziva Los Cabos for 20,000 points per night. We expected to receive 50,000 bonus points and at least 6,000 in rewards from the $6,000 spending. We had enough Chase points to top up to 60,000 points and book at least a 3 night stay.

At the time, the cash price for a 3 night stay was $1,125. This gives a valuation of $1,125 / 60,000 * 100 = 1.875 cents/point; a great value compared to our conservative estimate of 1.2 cents/point used to justify paying the taxes with a credit card3.

Zooming with United

For the flight, we expected to book one of United’s non-stop options between Chicago and Cabo San Lucas for 35,000 per person. We expected to receive 100,000 bonus points and at least 10,000 in rewards from the $10,000 spending. We had enough Chase points (unused from the Hawaiian booking), to cover the additional 30,000 points if needed.

At the time, the cash price for the 4 of us to fly regular economy roundtrip was $1,990. This gives a valuation of $1,990 / 140,000 * 100 = 1.42 cents/mile; a solid value compared to our conservative estimate of 1.2 cents/mile used to justify paying the taxes with a credit card4.

The Booking Reality

We were approved for both cards, but by the time we received them the world had started shutting down. The IRS and Chase extended the tax deadline and sign up bonus deadline, respectively, by 3 months. We were in no rush to part with that much money, so we also waited 3 months before we executed the plan.

Paying the taxes with credit cards and achieving the sign up bonus worked without any issues. By the time we received the bonus, our Hawaii trip had been completely canceled and refunded, and it was clear that things would not be letting up anytime soon.

To keep hope alive and give us something to look forward to, we booked a trip to Cabo as far into the future as the systems would allow. Armed with the convenience of time and additional points from the canceled Hawaii trip, we had the luxury of being very picky while planning. We wanted a 5 night, not a 3 night, stay. We also wanted a non-stop flight that didn’t require us waking up before the sun. Thus, our original plan was mostly ripped to shreds in favor of a new one.

Bailing on Hyatt

An influx of Hilton points and better understanding how to use the Hilton Points Explorer led us to the beautiful Hilton Los Cabos Beach & Golf Resort. In terms of something to look forward to while in isolation, that would definitely get the job done.

We found a five night stay for 280,000 points (70,000 points/night and 5th night free!). We used the points originally earned for Hawaii to book it without any issues. The cash price for 5 nights on Hilton’s website is $2,300, giving us an excellent valuation of $2,300 / 280,000 * 100 = 0.82 cents/point5.

After booking we discovered a discounted rate on Prestigia with the same stay for only $1,550. Using that as the baseline price, the valuation drops to 0.55 cents/point. However, due to our surplus of Hilton points, lack of upcoming travel destinations, and uncertainty whether we would need to cancel, we still favor the points in this scenario.

That said, this was a great opportunity to try out Hilton’s price match guarantee. Spoiler Alert: It didn’t work.

Sleeping in on United

The non-stop United flights all depart around 9:00am local time. On the way there, we are happy to wake the kids up and get to the airport before the sun comes up. On the way home, that’s not quite as intriguing. We searched other airlines, but couldn’t find a pair of non-stops that interested us. We decided to split the trip into two one-way flights to get a better departure time on the way home.

Departing on a Voucher

After the flights to Hawaii were canceled, we found ourselves with a United flight credit expiring at the end of the year6. Without knowing whether we would have another opportunity to use it, we decided to book that 9:00am flight to Cabo using the voucher, plus cash for the difference (~$170).

Returning on a Bonus

American Airlines offers return flights departing in the afternoon. We like that much better than waking up at 5:00am on our last day of vacation. Two things make it possible to book an American Airline award flight despite not having enough American Airlines miles:

  1. British Airways is a partner with American Airlines, with very friendly award pricing.
  2. British Airways is a transfer partner with Chase Ultimate Rewards, and transferring points is simpler than it sounds.

This means we can book an American Airlines award flight through British Airways using Chase Ultimate Rewards points. At 11,000 Avios7 per person, we needed 44,000 Avios for the return flight from Cabo to Chicago. We originally planned on using ~34,000 Chase points to top up United and Hyatt for the award bookings.

As luck would have it, Chase was offering a 30% bonus for transferring points to British Airways. That means for every 1,000 Chase points transferred, we receive 1,300 Avios. With that bonus, we only needed to transfer 34,000 Chase points to receive enough (44,200) Avios to book the flight. Sometimes the numbers just work out.

We booked the flight using those 34,000 Chase points (converted to Avios) plus $280 in airport taxes and government fees. The best cash price we found for the return flight was $900 (including those taxes and fees). Subtracting our cash costs from that total, we get a solid valuation of ($900 - $280) / 34,000 * 100 = 1.82 cents/point.

The Final Grade: B

Our initial plan was to pay an additional fee on our tax payment to earn the majority of points needed for a 3 night stay in Cabo. While that plan could have worked, we chose to book a 5 night stay in Cabo without using any of the award points earned from paying taxes. From that perspective, the value of the points earned specifically from paying taxes on a credit card is still TBD.

From the perspective of booking an award stay in Cabo as something to look forward to while in quarantine, we succeeded. By adapting the original plan, we booked 2 additional nights at a hotel that excites us more than our original choice. We also booked a more desireable flight time for the return trip. We probably made it more complicated than it needed to be, but with time on our side we were happy to spend more of it to book our ideal vacation.

Our out of pocket costs totaled $720 for the entire trip:

  • $270 in fees for paying taxes with a credit card.
  • $0 for the hotel booking.
  • $170 for the departure flight (exceeding the voucher amount).
  • $280 in fees for the return flight.

The cash value of our trip was $2,620:

  • $1,550 for the cheapest hotel option.
  • $170 for the departure flight (excluding the voucher gifted by United).
  • $900 for the cheapest return flight.

Using 34,000 Chase points and 280,000 Hilton points saved us $1,900 in cash for our trip. Our expected value of those points was $1,855:

  • Chase: 34,000 points * 1.75 cents/point / 100 = $595
  • Hilton: 280,000 points * 0.45 cents/point / 100 = $1,260

Confused why we expected such different values from Chase and Hilton? Check out Episode 3 of the PointHeads Podcast to learn about valuations:

Even factoring in the costs associated with paying taxes, we still exceeded the expected value of our points. This tells us we did a pretty good job in only our second award booking, but there is always room to improve (e.g. increase our expectations)!

  1. Related to my decision to change jobs and the sudden acceleration of my wife’s basketball training business. ↩

  2. There are also many credit cards available giving at least 2% back on every purchase. Even without a sign up bonus, using one of those cards could make sense depending on the situation. ↩

  3. Rates have since dropped to $700 total for 3 nights (1.17 cents/point), which would no longer be a great use of points. But if we really wanted to get to Cabo while paying minimal cash, it might still be the best option. ↩

  4. Rates have since dropped to $1,700 total (1.21 cents/point), which would be less than the typical United mile valuation between 1.3 and 1.4 cents/point. But the best values of United miles come from flights across an ocean, which is not in our immediate plans. We could also get 1.25 cents/point by booking directly on the Chase travel portal thanks to the Chase Sapphire Preferred card, but we didn’t have enough Chase points (or a way to earn enough points) at the time. For those reasons, we would probably still be satisfied using miles for the trip. ↩

  5. In line with our expected valuation (0.84 cents/point) had we been able to use them at The Grand Wailea in Maui. And well above most expectations between 0.4 and 0.6 cents/point. ↩

  6. The same flight credit initially used for the Hawaii trip. Still a story for another time. ↩

  7. British Airways calls their miles Avios, because they always have to make simple words sound fancy… ↩