Cruise Ship Tax Deductibility – What You Need to Know
US Flagged Ships
Ships registered in the US and sailing in the North American area, as defined by the IRS code which includes many islands in the Caribbean, and Mexico as well as Alaska and Hawaii. The cost of meetings held aboard a US-Flagged cruise ship can be fully deductible for tax purposes, when that purpose is business. Please see Q&A.
The IRS says that corporations can deduct the expenses of an incentive travel program; however the recipients must report the fair market value of the trip as income, and pay the appropriate tax, regardless of whether the trip takes place on a cruise or at a hotel/resort.
Corporations have been missing the boat when it comes to using a cruise for pure business meetings – and it’s often because of perceived tax obstacles.
There are some benefits to using US ships vs. hotels as detailed in Norwegian Cruise Line’s comparison chart and their Q&A shown here.
There are also a number of restrictions that must be met to qualify for the deduction
Tax Deductibility via Luxury Water Transportation
The 1986 Tax Reform Act still includes deductions for business travel using “Luxury Water Transportation”. This clause pre-dates air travel, and is now an underutilized option in the tax code, contained in IRS Publication 463
Discuss it with your tax advisor, or contact Landry & Kling and we’ll put you in touch with the attorney who has studied this issue extensively and made it the center of his practice for years. Incentive programs which typically have limited business content could easily deduct the cost of their cruise (up to $668 per person, per day) as “transportation to a land based meeting” which Landry & Kling can arrange in one of your ports of call. Discuss it with your tax advisor or lawyer, and decide for yourself.