May 20, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

Cruisin’ for a Tax Deduction

If you haven’t had a chance to check out Facebook or Twitter recently, you may have missed out on something going viral. It turns out there was an election in this country.

Without getting involved in the politics, I’ve noticed that there’s been some division among the populace. There’s protests, counter-protests, street brawls and, most shockingly, there have even been Facebook fights. People are unfriending others left and right. Granted, most of your Facebook friends are probably just friends of friends or people you’ve only met once before, but your list of friends may be shrinking by the moment. This is madness! The next thing you know, our Facebook “friends” will only consist of our actual friends. You know, like real-life friends. What an odd thought.

So in the spirit of uniting this country (and the hope that we can go back to calling some creepy guy you ate Shabbos lunch with who then sent a friend request to you seven seconds after Havdalah a true “friend”), today I bring you a tax break for everyone — no matter which side of the aisle you stand on. Allow me to explain. Maybe this election has you down in the dumps and you’re fed up with this country and you want out. Or maybe you’re so excited that you want to take a vacation to celebrate.

Sure, you could travel by car or by plane. But I’ve got a much better idea. Why not take a cruise? That’s right — I’m going to discuss how you can deduct the entire cost of a cruise.

Let’s say you decide to flee the country to the Western Caribbean. You’ve never been there before though, so you’d rather check it out first. If you want to deduct the cost of the cruise, your first step must be to make the travel for business purposes. You can’t deduct travel unless there is a business purpose. This could be to meet with a client, to meet with a potential client, a business meeting with a colleague, etc.

So now that you have your business purpose established, it’s time to look into travel options. The tax laws don’t limit your method of travel. You can travel by plane, first class or coach; by train; by car; or even by boat. That boat can even be a large cruise ship.

But there is one catch. If you travel by cruise ship, you can only deduct up until the luxury water travel limits. I know what you’re thinking, “I knew it couldn’t be this good. I bet the deductible amount doesn’t come close to the actual cost of a cruise.” Well, you’ll be pleasantly surprised to hear that the limits are quite high. In fact, for 2016 the limit varies from a low of $688 per day to a high of $856 per day, depending on the time of the year. IRS Publication 463 lists the daily limits based on the time of year. So for a 10-day cruise, you can actually deduct at least $6,880 of the cost in 2016.

I decided to price this out to see what these daily limits could really get you. So first I priced out a five-day Western Caribbean cruise on Royal Caribbean. Not only can I stay in a regular room with the common folk, but I can hang out with the aristocrats with a Royal Suite complete with a separate bedroom, balcony, whirlpool bathtub and wet bar for $672 per day, still under the lowest limits of the year. So the cost of this cruise would be fully deductible.

But let’s say I’m a huge fan of Mickey Mouse. I don’t want to travel just with people. I want to travel with people forced to wear fur costumes all day in 110-degree weather who have to wave to me every time I pass by. I want a Disney Cruise! Well, good news. You can book a five-day cruise with accommodations in a deluxe room for a total of $1,785, well below the daily luxury water travel limits.

Do you like eating abnormal amounts of food even after you are full? Are you sick of eating just two or three species of animals at a given dinner? Maybe pushing in line at carving stations is something you enjoy? Then you’re the perfect candidate for a kosher cruise. Once again I’ve got some good news for you. You can book a seven-day cruise on Kosherica with a mini suite and still be within the deductible limits. So in short, I have yet to find a cruise ship that would be above the maximum limits.

There are only a couple of things to be on the lookout for. The first is whether the meals are fully deductible. After all, meals are usually subject to a 50-percent haircut for deduction purposes. The answer is that it depends on the cruise ship bill. If the bill separately states the cost of meals and entertainment, then you may only deduct 50 percent of the cost. However, if the bill merely lists an all-inclusive price for both the cruise and meals then you can deduct them in full.

The other item to consider is the foreign travel rules. Under the tax law, when you travel out of the United States, to fully deduct the transportation, 75 percent of the trip days must be considered business days. But keep in mind that travel for business purposes is considered a business day. So let’s say you took the seven-day Kosherica cruise to the Caribbean for a business meeting and went back on the ship the next day. The day of the business meeting is certainly a business day under the rules. But even the travel days on the ship are considered business days. So every day of your trip is considered a business day.

But you can escape the 75-percent business day rule if your entire trip is less than seven days, excluding the day of departure. In that case, you only need one day of business to qualify the trip. So let’s say you took a cruise out of the United States with three days of actually being on the boat, one day of business meetings and two days of sightseeing. Since only four of those days were considered business days, you fall short of the 75 percent you need. However, since your trip was less than seven days you can deduct the entire cost since your purpose of the trip was for business and you had at least one business day.

So the next time you travel for business, think twice before you book your tickets. If you enjoy sitting in tiny seats, using tiny restrooms and eating tiny bags of peanuts, then airplane travel is for you. But if your idea of travel is sitting poolside while smoking a cigar, with a beer on one side and Donald Duck on the other, then consider a cruise for your mode of travel. It may just be the best business decision you make.

Daniel Magence, CPA, Esq. is a principal at Pristine CPA Solutions, LLC (www.pristinecpa.com). Pristine CPA Solutions offers tax and accounting services to individuals and businesses of all sizes, whether its tax returns, bookkeeping, payroll services or personal income budgeting. He can be reached at [email protected] or 201-326-6908 if you have any questions or comments, or are interested in using Pristine CPA’s services. Feel free to contact us for a free consultation.

 By Daniel Magence, CPA, Esq.

 

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