#23: Seas the Deduction: Business Travel on Cruises Explained

Real Estate Is Taxing

If you've considered attending a cruise that relates to your business-you won't want to miss this episode. Learn the ways you can and can't write off a cruise as a business expense.

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[00:00:00] Welcome to Real Estate is Taxing, where we talk about all things real estate tax, and break down complex concepts into understandable, entertaining tax topics. My name is Natalie Kolodij, I'm your host, and I am so excited that you've decided to join me.

[00:00:23] Hello. Hello everyone. And welcome to this week's episode. The past several months, I have attended multiple conferences, tax conferences, real estate conferences, all across the country. Various venues. And it got me thinking about one of my favorite travel business topic. Overlaps. Which is when you can and when you can not. Deduct travel on a cruise ship.

[00:00:53] There's a lot of blogs and articles out there, but they're all fairly vague or they give very [00:01:00] generalized steps and don't really talk about the feasibility of it. Or actual examples of it. I spent some time today searching for some court cases related to this topic. And there really aren't any specific to cruise ship travel as its own deduction.

[00:01:19] I couldn't find it as a focus point of a case. I did find some court cases that were semi-related we'll chat about one of those at the end. But outside of that, there's not a ton of guidance because it's pretty cut and dry.

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[00:01:34] The code section for this hasn't changed since 1982. So there haven't been any big updates or anything that really needed to be contested in recent years. So let's get into it. There are two different ways you can potentially write off a cruise as a business expense. Both of these are covered in code section [00:02:00] 2 74 M and they are split between addressing conventions on cruise ships. And then a secondary category known as luxury water travel. So starting off with conventions on cruise ships. This is something that I hear about pretty often. I think anyone in the tax industry and real estate in a lot of industries, There are multiple cruises per year related to most industries that you can choose to attend.

[00:02:33] It will be in most cases, a seven day cruise. They will buy a room block the same way they would for a conference at a hotel or a resort. And then everything takes place on the cruise. There are however many hours of education. There are, different conference related events and networking.

[00:02:51] They're renting out general speaking areas. And attendees pay for the room. And the cruise fare, it's all typically rolled [00:03:00] into one price. So these are marketed pretty frequently. And I have most often seen these marketed as a deductible business expense. But the truth of it is very rarely. Is a conference or an educational event on a cruise ship. Going to just easily be deductible. So let's start off with the first. Addressing of this.

[00:03:29] So let's look at how the code words, this. In the case of any individual who attends a convention, seminar, or other meeting, which is held on any cruise ship. No deduction shall be allowed under section 1 62 for expenses allocable to such meeting. Unless the taxpayer meets the requirements of paragraph five. And establishes that the meeting is directly related to the active [00:04:00] conduct of his or her trade or business. So code section 1 62. Is the part of the tax code that explains ordinary and necessary business expenses. As a starting point, attending a convention seminar, et cetera, on a cruise ship. Is only a business deduction. If it directly relates to the taxpayers ongoing trader business, that makes sense. Next part. Again, it is directly related to the active conduct of his or her trader business. And that, and then it goes on to list two requirements. Requirement number one, the cruise ship is a vessel that is registered in the United States. And requirement number two. All ports of call of that cruise ship are located in the United States or in possession of the United States.

[00:04:53] So when we just start off with looking at these two initial requirements, I will [00:05:00] let you guess how many cruise ships you think fit the bill? If we are looking at large commercial cruise lines. there's a thousand, 2000 people on board, maybe more. It normally is a week long, goes out to a few islands, go somewhere else. But we're not talking about like a river cruise or one of those little boats that'll fit like a hundred to 300 people, But one of those large commercial cruise ships, where there is a buffet and like a kid's club and water slides and all of that. One we're looking at that level of cruise ship. There is one. Singular ship that meets the requirement. Norwegian cruise lines, pride of America based in Hawaii is us registered. And it is the only large commercial cruise lines, cruise ship. That is us registered. Most cruise ships are registered to other countries for a variety of reasons. So just right off the bat, most cruise [00:06:00] ships are not going to meet this requirement. The vast majority of cruises and cruise ships do not check the boxes. To be able to write off a convention or seminar that is held on a cruise ship. If it did, let's say that. Your industry is hosting a cruise that goes to Hawaii on that pride of America cruise ship. So it is us registered and it is only going to the United States.

[00:06:28] then there is a $2,000 expense limit. For the total cost of that cruise with that seminar or convention. Total expense CAPTA, $2,000. In addition to that, if you happen to find a cruise that ticks all of the boxes and does qualify. To write off as a convention or an event that is held on a cruise ship. There's a whole bunch of reporting requirements that are required as [00:07:00] well. for the tax year where you're claiming that deduction. You also need to include. A written statement. Signed by the individual attending the meeting.

[00:07:10] That includes information about the trip, the total days that excludes the transport to, and from the cruise ship. The number of hours each day of the trip where you devoted to only business activities. You need to include a program or schedule for all of the business activities or meetings. And any other information that might be required by the secretary.

[00:07:36] Additionally, you also need to include. A written statement signed by an officer of the organization or group sponsoring the meeting or the conference. And that has to include. A schedule of the business activities for each day, the number of hours, which you attended those business activity. And any other [00:08:00] information as might be required by the secretary. so for the amount that we are fed and marketed cruises that are a tax deduction and attending these seminars on a cruise that are going to be a write off, they're likely not going to be. And in the rare event, they are. They're a huge pain in the ass to include everything you need to on your tax return to claim that deduction. So that's not a very likely option.

[00:08:27] It's not my favorite option. But that's what we have for the availability of writing off a convention or a seminar that is specifically held on a cruise ship.

[00:08:39] The next option that I think is the far better choice. Is looking at your crews under the definition of luxury...