Can You Deduct Your Cruise on Your Tax Return?

This week’s news starts out far afield from cruising, or so it would seem.  As you know, we are creeping up on that infamous date:  April 15, also known as Tax Day.  (As an aside, this year it’s the 17th, because the 15th falls on a Sunday, and District of Columbia has a holiday on the 16th.) One of the more interesting questions you are going to hear, if you hang around cruise people, is:  Can you deduct your cruise or any part of it from your taxable income on your tax return?

The short answer to this is:  NO.  No, 95% or more  of the time, you cannot deduct your cruise expenses, in part or in whole.  Oh come on, that would be way too easy, wouldn’t it?  Enjoy a wonderful, relaxing cruise, and get to take the money you paid for it off your taxable income?  And yet…..there may be some situations that you could possibly deduct some of your cruise expenses.  Read on…

Before I go further, a caveat.  I know what you’re thinking I am going to say:  I am not a CPA.  I am not a tax professional.  Please do not take this information to be tax advice, and be sure to consult your tax adviser.  So, the first two sentences are NOT true (I AM a CPA and I AM a tax professional); however, the second sentence IS true:  definitely consult your tax adviser and don’t take anything I say here to be tax law.

Now, back to the question.  The way tax law is written, in order to deduct your cruise expenses where you, for example, attend a seminar or business meeting related to your business, there are several requirements to be satisfied.  Per IRS guidance:

1. The convention, seminar, or meeting offered on the cruise ship must be directly related to your trade or business.
2. The cruise ship must be a vessel registered in the United States.
3. All of the cruise ship’s ports of call are in the United States or in possessions of the United States.
4. You must attach to your tax return a written statement signed by you that includes information about:
   1. The total days of the trip (not including the days of transportation to and from the cruise ship port),
   2. The number of hours each day that you devoted to scheduled business activities, and
   3. A program of the scheduled business activities of the meeting.
5. You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:
   1. A schedule of the business activities of each day of the meeting, and
   2. The number of hours you attended the scheduled business activities.

Those are some tall requirements, folks.  Particularly look at numbers 2 and 3.   Looks like NCL America had ONE ship that is registered in the US, and the other cruise lines have exactly none.   Number three states that all ports of call must be in the U.S.   NCL America used to run a ship that cruised the Hawai’ian Islands, but those cruises don’t exist any more, so I think that’s pretty much toast.  There are some Mississippi River Cruises ** that might fill the bill, so then you will have to look at the rest of the requirements and see if your cruise matches them (e.g. are there seminars or conferences on these cruises).  My guess is:  you aren’t going to be able to deduct your cruise, even if the primary purpose of your trip is business related.

However (you knew a “however” was coming, no?) if you are a travel professional (but not if you are simply attending a business convention, seminar or meeting on a cruise as stated above), you CAN deduct your cruise expenses, up to a daily limit.  For 2011, the limit for professional travel deductions is between $566 and $732, depending on the date of your travel.  For further information, including specific date information, see IRS Publication 463 and look for the section on Luxury Water Travel.  As an adjunct, notice the Meals and Entertainment section.  If your meals on your cruise are not separately stated, no need to worry about those.  However, if you eat in the premium venues, those prices ARE separately stated, so they can only be deducted up to 50% of the amount you paid.

OK, is that all as clear as mud?  Sorry, Congress wrote the rules….blame them!  This is even more of a reason why you should not, repeat, NOT take my word for this if you have any cruise expenses you would like to deduct, but instead, take these questions to your friendly neighborhood tax professional!

**American Cruise Lines will begin cruising in August 2012 from New Orleans.  **Blount Small Ship Adventures and Great American Steamboat Company  are currently cruising.