Taking a cruise can be a great way to spend a vacation, but can it also be tax deductible? Yes, but only in limited situations. You can deduct travel by ship if a convention or other business event is conducted on board a ship, or if you use a ship as a means of transportation to a business destination. Make sure you understand the rules before you book a cruise.
Shipboard Conventions and Seminars
Forget about getting a tax deduction for a pure pleasure cruise. You may, however, be able to deduct part of the cost of a cruise if you attend a business convention, seminars, or similar meetings directly related to your business while on board. Personal investment or financial planning seminars don’t qualify.
But there is a major restriction: You must travel on a U.S.-registered ship that stops only in ports in the United States or its possessions, such as Puerto Rico or the U.S. Virgin Islands. If a cruise sponsor promises you’ll be able to deduct your trip, investigate carefully to make sure it meets these requirements.
If you go on a cruise that is deductible, you must file with your tax return a signed note from the meeting or seminar sponsor listing the business meetings scheduled each day aboard the ship and certifying how many hours you spent in attendance. Make sure to get this statement from the meeting sponsor. Your annual deduction for attending conventions, seminars, or similar meetings on ships is limited to $2,000.
Transportation by Ship
You can get a deduction if you use an ocean liner, cruise ship, or other means of water travel solely as a means of transportation to a business destination. This isn’t very common these days, but it can be done. In this event, your deduction for each travel day is limited to an amount equal to twice the highest amount federal workers are paid each day (called the per diem rate) for their living expenses while traveling inside the United States on government business. This was $366 in late 2012. You can find the latest rates in IRS Publication 1542, Per Diem Rates.
In addition, if your bill includes separately stated amounts for meals and entertainment while on the ship, you can deduct only 50% of these expenses.
Does this mean you can take a long pleasure cruise to a business destination and get a deduction for each day? No—the regular foreign travel rules apply to ship travel. A foreign trip that lasts more than 14 days is deductible only if you spend more than half of the time on business.