Smart meeting planners like you already know that cruise ships are unique, cost-effective venues for their meetings & incentives. But with tax deadlines upon us, you might be wondering “Are Business Cruises Tax Deductible?” Yes… in limited situations. Here’s what you need to know:
Cruise Meeting Tax Deductibility
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. 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.
To avoid any tax burden whatsoever for your participants during a company-sponsored business cruise, there’s another option: 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 – most of the planners are work with find this a win-win solution.
Incentive Cruise Tax Deductibility
The IRS allows corporations to 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.
Tax Deductibility on US-Flagged Ships- FAQs
Ships registered in the US and sailing in the North American area, as defined by the IRS code, includes U.S. waterways and rivers, Alaska and Hawaii, as well as many islands in the Caribbean. The cost of meetings held aboard a US-Flagged cruise ship can be fully deductible for tax purposes, when that purpose is business.
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 organization’s tax advisor, or contact Landry & Kling and we’ll put you in touch with the attorney who has made this issue the center of his practice for years. Incentive programs with some business content can deduct the cost of their cruise (up to $668 per person, per day) as “transportation to a land based meeting”. Landry & Kling will arrange this shore-based meeting in one of your ports of call.
If Your Business Cruise is Not Tax-Deductible…
Not to worry! You will still save money (up to 30%) over a land-based program, because of all the value-added inclusions of a cruise: meals, entertainment, meeting space, AV equipment, travel to multiple ports. And that’s just the beginning! The brand loyalty and increased employee engagement generated by a business cruise will last long after the voyage ends.