You’re a travel professional (consultant, agent, writer, blogger, location independent entrepreneur) and you’re interested in a new area, destination, or type of travel. You plan a trip of your own to explore this new destination.
You self-fund this trip.
You’re not going along on a fam or a press trip organized and funded by someone else, but you’re paying for this through your own money or your business’ money.
Is this tax deductible?
Let’s say you’re a travel agent/consultant who is beginning to assist clients with Disney Cruise Line sailings. But, you’ve never been on a Disney Cruise, and you need some first hand experience. You book a trip for you and your family on one of Disney’s 3-day sailings from Port Canaveral to the Bahamas with a stop at Castaway Cay.
Let’s say that the trip costs $3,000.
Is this trip tax deductible?
Just like an accountant answering with qualifications!
I wrote about the subject of cruising and tax deductions earlier this year, and I know that in the TAs Talking About Disney Facebook group the subject of cruise travel expense deductions was discussed recently. If you’ve seen either discussion, you’ll know that the IRS does place some specific parameters on cruising deductions.
Let’s handle the Yes first:
Yes, you can deduct business expenses of they are, and these are the IRS’s own words, both ordinary and necessary.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
You can make a good argument that taking such a cruise would be quite ordinary for a travel agent/consultant.
Then it’s fully deductible, right?
Now for the But.
The family has come along on this cruise. Mom, dad, and three kids. Both mom and dad own, operate, and actively participate in the business. The kids are all young and do not participate.
Here’s where the necessary figures in:
Was it necessary that the children come along?
Was it necessary that both mom and dad come along?
There’s no hard and fast answer to those questions that will hold up in every circumstance.
Here’s how we answered them:
A few years ago, Jennifer and I took this same Disney Cruise (3-day to the Bahamas with a stop at Castaway Cay) as part of our travel business, Southern Girl Travel. We considered it an ordinary and necessary expense; we both went along; and, we took the kids.
We deducted part of the trip, but not all of it.
Like most travel pros, we deducted a ton of travel expenses.
Many of our trips are 100% business and they get deducted to the maximum extent the law will allow. However, many of our trips do have a non-business aspect to them, especially if the kids are along. That aspect is not necessary to the business, so the portion of the expense associated with the non-business part of the trip is not deductible.
If you take a cruise that’s an all business self-funded trip, it will likely be completely deductible. But, talk to a tax pro first, and consider the IRS’ limitations on cruise line travel.
How exactly did we figure our deduction?
We decided that the cruise was 50% business for us and it was both ordinary and necessary. It was all fun for the kids.
The kids portion of the trip, and
Our portion of the trip.
We deducted 50% of our portion of the trip, and amount which fell below the IRS’ cap on cruise line expenses.
And I slept well at night!