Tax Destructibility for Corporate Meetings on Cruise Ships
While corporations have eagerly been using cruises for their incentive programs for years, they have been missing the boat when it comes to other types of business meetings. This is usually because of perceived tax obstacles for cruise meetings tax deductibility. A company can take employees, independent contractors or customers on a cruise and can tax deduct the related expenses as a normal cost of doing business, but the participants must shoulder the tax burden for the fair market value of cruise benefits received.
Paying the tax is usually acceptable to participants of an incentive cruise that’s full of free time, personal recognition, and new experiences, however it’s less desirable for participants to pay taxes on a business trip dominated by a highly focused, serious meeting agenda with little personal time (even if it is aboard ship).
Solution for company-sponsored meetings at sea:
To avoid any tax burden whatsoever for your participants, there’s a radical solution. If the sponsoring corporation chooses not to take the tax deduction, there’s no tax burden to pass on to the participants. Since cruise programs (without benefit of any tax deduction) usually cost less than a comparable resort program with the tax deduction benefit factored in – this is a choice worth considering.
When the attendees pay their own way:
You can use a cruise to add sizzle to your business meeting, without losing the business deductions your attendees need. Here are some ideas we’ve checked out with the tax experts: (partial deductibility on these is determined by tax code sections 162 & 274).
- Alaska 7-day cruise, combined with 3 days of pre/post meetings in Vancouver/Anchorage hotels.
- QE2 Trans Atlantic Crossing, in conjunction with a London-based conference. (Partially deductible based on double the federal per diem for business travel.)
- Hawaii Cruise, 7-nights on a U.S. registered ship in U.S. waters, deductible up to $2000 per convention goer. Yacht-like 100-passenger U.S. vessels cruise the U.S. Virgin Islands, Alaska, the Colonial South, or Florida’s Fairways, with up to $2000 deductible for meeting attendees.
- Cruise to Bermuda or ports in the “Caribbean Basin Initiative” with meetings ashore.
Need some professional tax advice to evaluate the ramifications of meetings at sea for your group? Contact Howe & Hutton (312)263-3001. They are general counsel for both MPI and SITE, and represent over 200 associations and Fortune 500 companies.