Cruise Ship Meetings and IRS Tax Deductibility
IRS tax deductibility of meeting expense will usually not be the determining factor when comparing hotels with cruise ships as meeting venues. Usually the decision will be based on accessibility, destination and out-of-pocket cost considerations
Groups are frequently organized by associations, corporations, charitable groups, seminar presenters, schools, or individuals with modest out-of-pocket cost to the organizer. The individual cruising, either alone or with family, pays the bill. This shifts the issue of tax deductibility to each individual to discuss with his tax advisor.
If the organizer is paying the expenses, which might be the case for corporate training or incentive rewards, tax issues can become complex. When the entire cost is taken as a full deduction by the organizer, the employer may be required to chargeback the expense as W-2 income to each individual participants. This may be another reason why individual tax advisors frequently become the final determiner of what is deductible, and what is not.
The following guidelines may be helpful if one is considering a cruise that is intended to be fully tax deductible to the corporation paying the full bill.
IRS Expense Deduction Rules & Taxes:
According to the IRS, corporations and individuals may deduct the travel expenses associated with attending conventions or business meetings. They must demonstrate that attendance directly benefits their trade business, and that the attendance is directly related to that business.
The IRS allows these deductions ONLY within the North American area (including US, Mexico, Canada, Central America, some Caribbean islands and US territories in the Pacific).
As it relates to Conventions or Business Meetings on board Cruise ships, Internal Revenue Service Publication 463 (1999) states:
"Cruise Ships: Passenger can deduct up to $2,000 per year for attending conventions, seminars, or similar meetings held on cruise ships. Passenger must, however, establish that the meeting is directly related to his trade or business. All ships that sail are considered cruise ships. Passenger can deduct these expenses if all of the following requirements are met:
1. The cruise ship is a vessel registered in the United States
2. All of the cruise shipís ports of call are in the United States, or in possessions of the United States.
3.Taxpayer attaches a signed, written statement that includes the total days of the trip excluding transportation to and from the cruise ship port. The number of hours each day that devoted to scheduled business activities, and, a program of the scheduled business activities of the meeting
Incentive Travel that is solely in recognition of performance is fully deductible to the corporation. The IRSí guidelines for incentive expense deductions are the same whether it takes place on a ship or on land. If a Corporation decides to deduct as an expense the cost of an incentive cruise the cost becomes taxable to the participant as W-2 income. Companies can choose not to deduct the incentive expense and avoid subjecting employees to an additional tax liability. However, in order to take advantage of the IRSís rules on expense deduction without burdening participants with tax obligation, corporations usually categorize incentive travel programs as business meetings, thus allowing themselves full expense deduction without an individual tax burden.
Business meetings on board foreign-flagged ships do not qualify for tax deductions. Nevertheless, Caribbean cruises on board foreign flag ships have become a strong contender on the incentive travel market.
Norwegian Cruise Lines offers possible tax advantages when conducting meetings, workshops and conferences aboard their ships that operate in Hawaii. These two ships are modern, they are registered as American Flag Ships, and the itinerary only visits those ports qualifying under the American Port rule.
*Always consult your tax advisor for specific tax information relevant to your personal and business situation.
Thank you for letting me assist you to plan a wonderful cruise wedding and honeymoon.
*Please see Tax Deductibility Comparison Grid for specific deductions
The Langhorne Group
Cruise Meeting & Event Planners
P. O. Box 43
Stuart, FL 34995
Telephone: (772) 221-7550
Toll Free: (800) 896-6768