How to write-off the cost of a Cruise?

a huge cruise ship docked

Many taxpayers may think a Cruise ship is a great place to have their next “annual company meeting” or attend a conference. They may also think they can take a tax write-off for some education. Don’t get your hopes up.

Have you noticed there aren’t many conventions and courses offered on Cruise ships anymore? In fact, I don’t hold my annual Tax and Legal Wealth Workshops on a Cruise ship. There’s a reason.

The IRS crushed the travel expense and cruise ships as essentially ‘entertainment.’ At best, it’s a glorified business travel experience.

There may be a Partial Tax Write-off When Done Right 

Now with that said, I still want my clients and students to maximize their deductions whenever possible. If you’re going on a Cruise with a ‘business purpose’, let’s talk about the rules.

The Rules How to Write off a Cruise

Rule #1

You need to be able to show that the convention, meetings, or workshop onboard the Cruise ship directly benefited your business. The days that have a ‘business function’ would be deductible…the days of vacationing or relaxing wouldn’t be a tax write-off.

Rule #2

With really no questions asked, the IRS allows taxpayers to deduct up to $2,000 a year is allowed for attending cruise ship conventions or business trips IF all the ports of call are in the U.S. or U.S. possessions and if the ship is registered in the U.S. (Good luck! Only certain cruise lines going to Alaska would be generally possible). Moreover, a $2,000 deduction may not be enough to cover the cost of a luxury cruise ship.

Rule #3

If the ports are outside the U.S., the best option is to consider the ‘per diem rule’ that allows you to deduct up to 2x the maximum federal per diem rate, per day, on the Cruise.

Rule #4

Remember, the cost of travel to get to the Cruise is a different cost all together. It can be considered a separate expense to travel to the Cruise ship convention in the first place.

Rule #5

Also, the cost of the actual education on the Cruise ship (not the cost of the Cruise) should easily be a deduction if it is directly benefiting your business. If worse comes to worst and we can’t deduct the Cruise ship costs, we have a ‘fallback’ position to at least deduct the education or workshop fees.

Rule #6

Assuming the cruise qualifies for a write-off, food and beverage costs are still limited to 50% and would need to be separated from the cost of the cruise and the limitation applied.

Recommendations

Obviously, the trick is to consider the quality of the cruise and its cost, compared to the per diem rates. Thus, the “low budget” cruise lines may not be a problem if you are trying to get a full tax write-off in most years.

As such, from a practical perspective, I typically recommend that clients use the Cruise as a great time to avoid business and take a nice relaxing trip. 

If you want to get a write-off and maximize a deduction for travel, consider an ‘all inclusive resort’ or a trip to a workshop staying in a hotel. Bottom line, meet with your Certified Tax Advisor before you pay for the Cruise tickets if you are trying to get a deduction.

Interested in Learning More:

* To sign up for Mark’s weekly Free Newsletter and receive his Free E-Book “The Ultimate Tax Strategy Guide – 30 Steps to Saving the Most Money on Your Taxes” visit www.markjkohler.com.

Mark J. Kohler is a CPA, Attorney, co-host of the PodCasts “The Main Street Business Podcast” and “The Directed IRA Podcast”, and the author of “The Business Owner’s Guide to Financial Freedom- What Wall Street Isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”, as well as several other well-known books. He is also the CFO of Directed IRA Trust Company, and a senior partner at the law firm KKOS Lawyers.

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Mark Kohler

Mark Kohler

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