|
|
|
|
|
|
Archive | Newsletter | U.S. Flagged Ships | Recommended Cruises
 |
|
 |
|
Flagged ships offer special benefits for planners concerned with tax issues. They range from newly built, incentive-quality mega-liners to expedition type vessels that are best suited for smaller groups. Which is right for your program? Check here for some fast facts.
|
|
|
|
|
|
|
|
Tax Issues and Site Selection
• Consider this: only 50% of your food and entertainment expenses from a hotel program are tax deductible, whereas aboard a US-flag ship 100% of the cruise fare up to $2000 pp is deductible.
• The IRS says that corporations can 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.
• 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. Landry & Kling suggests a radical solution: Tax Deductibility via Luxury Water Transportation.
• The 1986 Tax Reform Act addresses “luxury water transportation” but it hasn’t yet become fashionable to use this loophole in the IRS code, contained in IRS Publication 463 available here - http://www.irs.gov/publications/p463/index.html Discuss it with your tax advisor, and decide for yourself.
|
|
List of US Registered Ships
We offer here a list of all ships currently registered in the US and sailing in the “North American area” as defined by IRS code which includes many islands in the Caribbean, and Mexico, as well as Alaska and Hawaii. The most suitable vessels for corporate programs are the mega-ships of Norwegian Cruise Line sailing primarily in Hawaii, and a few smaller ships (80-200 passengers) sailing in Alaska or on our American rivers. Most of the other US Flag vessels listed are not likely choices for professional groups due to the age and condition of these ships, but they are included for the sake of list-accuracy. (Click for list)
NCL’s Tax Q&A for US Ships
There are some benefits to using US ships vs. hotels as detailed in Norwegian Cruise Line’s comparison chart and their Q&A shown here.
IRS Reporting Requirements for Deductibilty of US Registered Ships
There are also a number of restrictions that must be met to qualify for the deduction
Comparison of US Registered Ships vs US Hotels
Consider this: only 50% of your food and entertainment expenses from a hotel program are tax deductible, whereas aboard a US ship 100% of the all-inclusive cruise fare is deductible (up to annual total of $2000 per meeting attendee). See ship vs. hotel comparison in the accompanying chart.
Tax Deductibility – Incentive programs
The IRS says that corporations can 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. More
Tax Deductibility – Pure Meetings
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. Landry & Kling suggests a radical solution: more
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 tax advisor, or contact Landry & Kling and we’ll put you in touch with the attorney who has studied this issue extensively and made it the center of his practice for years. Incentive programs which typically have limited business content could easily deduct the cost of their cruise (up to $668 per person, per day) as “transportation to a land based meeting” which Landry & Kling can arrange in one of your ports of call. Discuss it with your tax advisor or lawyer, and decide for yourself.
|
|
If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. The limit is twice the highest federal per diem rate allowable at the time of your travel. (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the United States, for business purposes.)
Daily limit on luxury water travel. The highest federal per diem rate allowed and the daily limit for luxury water travel in 2005 is shown in the following table.
| |
Highest |
Daily Limit |
| 2005 |
Federal |
on Luxury |
| Dates |
Per Diem |
Water Travel |
| Jan. 1 - March 31 |
$296 |
$592 |
| April 1 - April 30 |
$228 |
$456 |
| May 1 - June 30 |
$251 |
$502 |
| July 1 - August 31 |
$246 |
$492 |
| Sept. 1 - Sept. 30 |
$259 |
$518 |
| Oct. 1 - Nov. 30 |
$290 |
$580 |
| Dec. 1 - Dec. 31 |
$344 |
$688 |
Example.
Caroline, a meeting planner, traveled by ocean liner from New York to London, England, on business in May. Her expense for the 6-day cruise was $3,500. Caroline's deduction for the cruise cannot exceed $3,012 (6 days _ $502 daily limit).
Meals and entertainment. If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. For a discussion of the 50% limit, see chapter 2.
Example.
In the previous example, Caroline's luxury water travel had a total cost of $3,500. Of that amount, $1,600 was separately stated as meals and entertainment. Caroline, who is self-employed, is not reimbursed for any of her travel expenses. Caroline figures her deductible travel expenses as follows.
| Meals and Entertainment |
$1600 |
|
| 50% limit |
_ .50 |
|
| Allowable meals & entertainment |
$800 |
|
| Other travel expenses |
+ $1,900 |
|
Allowable cost before the daily limit
|
$2,700 |
| Daily limit for May 2005 |
$502 |
|
| Times number of days |
_6 |
|
Maximum luxury water travel deduction
|
$3,012 |
| Amount of allowable deduction |
|
$2,700 |
Caroline's deduction for her cruise is limited to $2,700, even though the limit on luxury water travel is higher.
Not separately stated. If your meal or entertainment charges are not separately stated or are not clearly identifiable, you do not have to allocate any portion of the total charge to meals or entertainment.
Exceptions
The daily limit on luxury water travel (discussed earlier) does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. See Cruise Ships under Conventions Held Outside the North American Area.
(insert caution image here)
Conventions
You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You cannot deduct the travel expenses for your family.
If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses.
Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. You can deduct your travel expenses only if your attendance is connected to your own trade or business.
Convention agenda. The convention agenda or program generally shows the purpose of the convention. You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes.
Conventions Held Outside the North American Area
You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:
- The meeting is directly related to your trade or business, and
- It is as reasonable to hold the meeting outside the North American area as in it.
If the meeting meets these requirements, you also must satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States.
North American area. The North American area includes the following locations.
| American Samoa |
Johnston Island |
| Antigua and Barbuda |
Kingman Reef |
| Baker Island |
Marshall Islands |
| Barbados |
Mexico |
| Bermuda |
Micronesia |
| Canada |
Midway Islands |
| Costa Rica |
Northern Mariana |
| Dominica |
Islands |
| Dominican Republic |
Palau |
| Grenada |
Palmyra |
| Guam |
Puerto Rico |
| Guyana |
Saint Lucia |
| Honduras |
Trinidad and Tobago |
| Howland Island |
USA |
| Jamaica |
U.S Virgin Islands |
| Jarvis Island |
Wake Island |
The North American area also includes U.S. islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia.
Reasonableness test. The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area.
- The purpose of the meeting and the activities taking place at the meeting.
- The purposes and activities of the sponsoring organizations or groups.
- The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held.
- Other relevant factors you may present.
Cruise Ships
You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.
You can deduct these expenses only if all of the following requirements are met.
1. The convention, seminar, or meeting is directly related to your trade or business.
2. The cruise ship is 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 attach to your return a written statement signed by you that includes information about:
a. The total days of the trip (not including the days of transportation to and from the cruise ship port),
b. The number of hours each day that you devoted to scheduled business activities, and
c. 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:
a. A schedule of the business activities of each day of the meeting, and
b. The number of hours you attended the scheduled business activities.
|
|
|
|
|
| |
|
