Mark Kohler breaks down when cruise expenses are tax deductible. You get a full write-off if the cruise is direct travel to a business conference. Otherwise, U.S.-flagged ships with all U.S. ports allow $2,000 annually if you have a clear business purpose. Per diem deductions work if you do at least four hours of business training daily.
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Now, I know you're watching this video with high hopes. How can I write off that Disney cruise? Norwegian Princess, Royal Caribbean Carnival. I get it. They're wonderful. Going on a cruise is a great experience. How could we get a tax write off? Well, it's difficult but possible. So I'm going to do my best to break it down. Now, let me explain why this is important in my initial disclaimer. You want to make sure that if you're going to try to write off a cruise, talk to your CPA first before you go spend on this. Because I've had a terrible example of a client of mine who was a dentist, and he promised all of his staff that if they hit a certain sales goal, he would take them on a cruise. And he thought this was great. He made him the promise, he took them on the cruise, they met the goal, and then he came to me and said, hey, I want to write this off. I was like, oh, my gosh, there's a lot of restrictions and rules on this and you don't want to include it in their W2. And I had a lot of bad news for him. So, again, before you try to write off a cruise, if that's the main objective, you need to talk to your CPA because they may not be comfortable writing this off on your tax return. All right, now, I'm going to give you the bad news first and then work to what I think is the best recommendation here at the end. Save the best for last, if you will. So let's run through it. Number one, 100% deduction. But the most difficult way to write it off, in order to write off 100% of the cruise, you've got to treat it as travel, just as if it was an airplane or a train ride. You're going to use the cruise to get to your conference. So It's. It's travel, 100%, just like airfare. So if you've got a workshop or a conference in Puerto Rico or in London, and you're going to take a cruise ship from New York to London or maybe from Miami to Puerto Rico, have your conference, then get on the cruise ship and come back, and then the cruise ship is like travel, but it's got to be direct. It can't be a lot of fun and games along the way. Shore excursions, all that good stuff. In my career of 20 years as a tax accountant lawyer, I have never seen a client pull that one off, but some May. And that's 100% deduction. Number two, the IRS allows for a $2,000 annual deduction for any business travel cruising. Now, there's got to be a business purpose. So you're going to have at least four hours a day of training on the cruise ship. There's going to be a convention of some sort with business training. And $2,000 doesn't sound like a lot, but it might work out because here's why, here's the catch. It has to be a US Based ship or a ship registered in the US and all the ports of call have to be in the United States. So this might work if you were to do kind of a Northeastern river cruise or right off the coast, maybe out of Boston or somewhere, and you go out and It's a short two to three day cruise and $2,000 might work, so that's a possibility. But Again, it's a U.S. ship, U.S. ports of call, business purpose and a $2,000 limit. But it is an option number three per diem deduction. Now this is probably going to be the most common and I've had clients use this strategy. It's not great because you can't write off 100% of the cruise unless it falls within these per diem rates. But, but here's the deal. You get two times the average travel deduction for this area of the country you might be departing from. And it's going to range from about 600 to $800 per day for a travel expense. Now, a couple caveats. That does not include meals. So you've got to look at what the prorated cost of the meals on the cruise ship are and then take only 50% of the meals. Next, you've got to be able to show that the primary purpose of the cruise was business training, a workshop convention, and do at least four hours of business a day. So four hours or more of training in the cruise ship, which might ruin a good cruise, but that's the rule. So you got to be doing business on the cruise ship and you get this per diem limit per day and you have to carve out the meals and you get 50% of the meals, then you've got voila, a write off while you're on this cruise ship. But if you don't do business every day, you've got to come back to this prorated pro rata type of division of the days you were on the cruise and which days were personal and which days were business. Again, meeting with your CPA in advance to kind of carve out what the write off might look like. But that's probably the most common way to write off these international cruises where there's business training on the cruise ship and these per diem daily limits. Number four, a few ancillary items. Number one, this is a good thing. Keep in mind that the travel to get to the port of call where you take off on your business cruise, assuming it's a valid business cruise, that airfare to get to Miami to get on the ship or Fort Lauderdale, say for example, is 100% write off because you got to pay for the trip to get there and then get on the cruise ship from that point. And the meals are still a write off during that travel period to get there, but they're limited by 50%. Also, another important point is entertainment is no longer a write off under the Tax Cuts and Jobs act until at least 2023 and Congress revisits it. So that means if you're on the cruise ship and you do a shore excursion or you pay for some extra entertainment of some sort and I know cruise ships are mostly all inclusive, but they do nickel and dime you for something. That entertainment is not going to be a write off. Even if you're with a customer or client, don't try to write it off under marketing. You're going to get hit. So be careful with that. Now I promised you the best for last. The best way. I think this is the ideal way to write off a cruise. Make it a personal trip and use business miles that you may have accumulated on your American Express card to redeem and pay for the cruise. See, the cruise itself isn't a write off, but the redemption of miles on your credit card of some sort of and when you transfer them over and redeem them for a cruise is tax free. The redemption of miles or points on a credit card are not taxable income. So the trick would be use your credit card for a bunch of business expenses. Rack up the miles, use the miles to pay for the cruise and make it a personal trip. Don't try to write it off. Why ruin a good cruise by going down into the belly of ship and having some workshop or training four hours a day? Make it a personal trip, but redeem miles to do it. And even for the airfare to get to the port of call that, my friends, is I think the best way to try to get a tax deduction for the cruise is to redeem points that are tax free to pay for it. Thanks so much for watching that video and I want to be your source for tax and legal strategies. It's hard enough to live the American dream without being out on the web on Google trying to find answers to complex questions and just click clicking a mouse, hoping you got it right. My team and I want to be a huge resource to you, the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. I know they'll save you thousands. 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