What do tax deductions and cruise ships have in common?
…a high degree of complication.
Cruise ships are like floating cities with thousands of people, tons and tons of food, thousands of gallons of drink, and exceedingly complicated machinery.
Tax deductions are just complicated.
Cruise-related tax deductions are more complicated than many others. Read on for the scoop…
Filing your taxes is likely the most familiar accounting task you’ll face, and it comes with a tremendous amount of stress for many travel pros.
April 15th is just days away.
We’re in the home stretch for filing those 2013 tax returns, and questions about deductibility of business expenses are on all of our minds.
Did you take a cruise in 2013? Was is at all business related? Do you plan to deduct the cost of that cruise?
A discussion of taxation and travel agents can be mind-numbingly boring…I mean poking-your-eyes-out boring.
It’s also one of the most important of all accounting questions for travel agents – because of the mind-numbing boringness of it all, I plan to take any discussion of taxes quite slowly.
In the run up to April 15th, let’s talk cruises.
Let’s assume that you’ve already determined that the cruise you took was a legitimate business expense.
Does the IRS have any specific provisions – read limitations – on cruise travel as a business expense?
Yes, indeed the IRS does limit the amount you can deduct for a cruise.
You can find all the details a booklet known as IRS Publication 463 Travel, Entertainment, Gift, and Car Expenses. We’ll call it Pub 463.
It’s riveting reading, I know, but it will give you details on a variety of related business expense deductions, including cruise ship travel.
The IRS seems to divide cruise ship travel into two categories: transportation and convention attendance.
I used the term “seems to” because every situation – including yours – is different. They all have sets of variables that the IRS might consider if you end up being audited.
Use caution, and consult a CPA or other tax expert if you have specific questions about your situation.
Now for those two categories: Transportation and Convention Attendance…
To the IRS, transportation is a method of getting from point A to point B. If you take a cruise ship as a means of transportation – the IRS refers to this as luxury water travel – there is a limit on the amount you can deduct.
Calculating the limit can actually be rather complicated.
Surprised, aren’t you?
What is that limit?
The limit is twice the highest federal daily per diem in effect during the dates of the cruise.
Ok, what is a federal daily per diem?
Per diem is simply the Latin word for “per day” and it is often used to refer to a daily allowance for expenses. If a per diem is $250, then you can spend up to $250 in deductible expenses per day.
Or you can simply consult Pub 463.
Which is a good idea because on page 9 of the 2013 edition, the IRS is kind enough to give us an example of utilizing the limit. It’s pretty detailed and should give you a good illustration of the limit.
The second instance of cruise travel limitation is when you attend a conference on a cruise ship. This is likely to be a bit more common than using a cruise ship purely as transportation.
According to Pub 463, the luxury water travel limits described above do not apply if you are attending a conference, seminar, or meeting on the ship.
Other limits do apply.
The IRS will allow you to deduct up to $2000 per year in cruise expense for attending conferences, seminars, or meetings aboard a ship. As detailed in Pub 463, to take the deduction, you must meet all the following conditions:
- The convention, seminar, or meeting is directly related to your trade or business.
- The cruise ship is a vessel registered in the United States.
- All of the cruise ship’s ports of call are in the United States or in possessions of the United States.
- You attach to your return a written statement signed by you that includes information about:
a. The total days of the trip (not including the days of transportation to and from the cruise ship port),
b. The number of hours each day that you devoted to scheduled business activities, and
c. A program of the scheduled business activities of the meeting.
- You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:
a. A schedule of the business activities of each day of the meeting, and
b. The number of hours you attended the scheduled business activities.
Kind of complicated to deduct those cruise expenses, isn’t it?
Complicated, but not impossible.
Pub 463 will give you good guidance, but don’t hesitate to contact a tax pro for assistance.
Remember, this post is just to illustrate the limits on cruise ship travel deductions. Please don’t consider it specific professional advice for your situation.
Relax…April 15th will be here and gone before you know it!