Cruising
for Tax Deductions?
Your next Caribbean
cruise
can be tax deductible
by William Brighenti, Certified Public
Accountant, Certified QuickBooks ProAdvisor
Has your
wife been harping on you lately about all work and
no play? Is she an employee or a partner of your
business (or, more likely, are you the employee)? Why not
consider a business cruise, allowing you to
write off travel expenses as business tax deductions? There's
nothing like
cruising to Antigua, Aruba, Barbados, Bermuda, Jamaica, Mexico, Puerto
Rico, or the Virgin Islands, feeling a tropical breeze caressing your
body, absorbing the soothing rays of the sun,
sipping margaritas, and stealing glimpses of bikini clad shipmates
while having Uncle Sam picking up a hefty share of the tab.
You deserve it, and your wife may love you for
it. Did I mention warm, sultry tropical nights?
Because
of extensive abuses involving tax deductions of conventions or seminars
on cruise ships,
the regulations allowing their deduction as business travel expenses
were tightened and limited a number of years ago. Presently you can
only deduct up to $2,000
per year for each person attending
conventions and seminars on cruise ships, and only if the cruise trip
meets all of the following requirements:
- The convention, seminar, or meeting offered on the
cruise ship must be
directly related to
your trade or business.
- The cruise ship must be 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 must attach to your tax return a written
statement signed by you that includes information about:
- The total days of the trip (not including the
days of transportation to and from the cruise ship port),
- The number of hours each day that you
devoted to scheduled business activities, and
- 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 schedule of the business activities
of each day of the meeting, and
- The number of hours you attended the
scheduled business activities.
Accordingly, conventions and seminars offered on Caribbean cruises are
not tax deductible since their ports of call fall outside the United
States. There is a way, however, to take a Caribbean cruise and
deduct more than $2,000 in travel expenses: simply find a
convention or seminar held in any of the North American Areas
sanctioned by the U.S. Department of State and travel there by
cruise! The North American area includes U.S. islands, cays, and
reefs that are possessions of the United States and the locations
listed below:
American Samoa
|
Grenada
|
Micronesia
|
Antigua
and Barbuda
|
Guam
|
Midway
Islands
|
Aruba
|
Guyana
|
Netherlands
Antilles
|
Bahamas |
Honduras
|
Northern
Mariana Islands
|
Baker Island |
Howland
Island
|
Palau
|
Barbados |
Jamaica
|
Palmyra
Atoll
|
Bermuda |
Jarvis
Island
|
Puerto
Rico
|
Canada |
Johnston
Island
|
Trinidad
and Tobago
|
Costa Rica |
Kingman
Reef
|
USA
|
Dominica |
Marshall
Islands
|
U.S.
Virgin Islands
|
Dominican Republic |
Mexico
|
Wake
Island
|
Under this tax strategem there would be no need of
restricting your travel on US vessels and to US ports of call, and of
signing and of obtaining from
the group sponsor detailed prescribed attest statements. If your
cruise does not exceed a week, simply
attend a business related seminar or convention (even a one day event
suffices for a one-week cruise), and you have satisfied the ordinary
and necessary expense
criteria of a qualified business tax deduction of your travel
expenses.
Of course, on any business trip, document your business expenses by
addressing the who, what, when, where, why questions, save receipts,
and collect convention/seminar paraphernalia as IRS souvenirs. If
your cruise exceeds a week, you are still eligible to deduct the cost
of the cruise as long as your nonbusiness activity does not constitute
25% or more of travel time.
If you travel by ocean liner, cruise ship, or other form of luxury
water transportation for business purposes, there is a daily limit on
the amount you can deduct, based on the per diem rate available to
federal government employees for daily living expenses when traveling
away from home in the United States for business purposes: the
daily travel deduction limit on a
cruise is stipulated as twice the highest federal per
diem rate allowable at the time of your travel. For the fourth
quarter
of 2009,
the highest federal per diem rate is $411; consequently, the current
daily
limit for luxury cruise travel is $822 per person per day.
If your expenses for luxury water travel include separately stated
amounts for meals or entertainment, those amounts are subject to the
50% limit on meals and entertainment before you apply the daily
limit. But if your meal or entertainment charges are not
separately stated or are not clearly identifiable, you do not have to
allocate any portion of the total charge to meals or
entertainment. Therefore, it would be tax wise to find a luxuy
cruise liner that does not
separately break out meal and entertainment charges so you can deduct
them fully; this should not be an overtaxing task.
If
your wife requires a cruise longer than a week, you will need to find a
convention or seminar constituting enough hours and days to fulfill the
75% business activity requirement for full deductibility of your
business travel
expenses. However, if you examine closely what legally
constitutes
a business day, you will discover that the 75% business requirement
does not necessarily
result in only one day of pleasure for every three days of
drudgery. A business day is any day where you devote more than
half of your normal workday's length to business. If your normal
workday is 8 hours and you devote more than four hours to business,
that partial day counts as a full workday. Moreover, the IRS
considers
the amount of normal ship time to and from your destination as business
days. In addition, the Internal Revenue Service treats weekends
intervening between days of business activity as business days, too.
For instance, if you were to depart from the United States on a
cruise liner on a Monday to travel to a Caribbean island where a
convention is being held, were to arrive there on Tuesday, and
were to devote at least a little over half of your normal working day
at the convention on Wednesday, Thursday, Friday, Monday, and Tuesday
(the convention not being open over the weekend), you may have
accumulated eleven business days, if you were to include the two days
to return home and the weekend as business days. If you were to
spend then three
additional days at the island's beaches, before returning home on the
cruise liner, you possibly transformed a largely non-deductible two
week trip into a legitimate tax deductible business travel expense of
as much as $11,508 ($23,016, if your spouse were to qualify) simply by
devoting a little more than twenty hours evenly spread over five days
at a convention. The same would hold true for an educational
seminar, as long as it lasts at least six hours each day and you are in
attendence for at least two-third's of each class.
With
winter on its way, now is the time to find a seminar on that Quickbooks
or computer subject that you've been meaning to bone up on, on that
tropical island where your wife has been bugging you to take her, and
on that luxury cruise liner that'll take you there in style. If
arranged correctly, you'll reap a much needed tax write off, too.
¡Buen viaje!
This article is provided for informational purposes and is
not intended to be construed as legal, accounting, or other
professional advice. For further information, please consult
appropriate
professional advice from your attorney and certified public
accountant.
Have a tax or an accounting question? Please feel free to submit
it to William Brighenti,
Certified Public
Accountant, Hartford CPA Accountants. For information
and assistance on
any tax and accounting issue, please visit our website: Accountants CPA
Hartford.
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. |