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    Is it a Course or a Cruise? The Tax Deductibility of Education on Vacation

    Posted by Sylvia Lagerquist, CPA

    Is it a Course or a Cruise? The Tax Deductibility of Education on Vacation

    One of the great challenges of being a small business owner is finding time to take a break. Your business needs you every day, it seems. When could you possibly find time for a vacation? On the other hand, you need to stay abreast of changes in your industry, learn new strategies and continue your own education as a CEO.

    Maybe, just maybe, you could combine the two…on a cruise.

    In addition to the benefits of “killing two birds” with one proverbial stone, you might be able to deduct part of the cost of your trip to boot. It is possible, and if you plan accordingly, doing so could be a smart business strategy. However, IRS regulations have been tightened due to abuses in prior years.

    Here is what you need to know if you elect to engage in professional development while on a cruise:

    • The IRS allows a deduction of up to no more than $2,000 pear year, per person.
    • You must follow specific per diem requirements when reporting applicable expenses (for example, your deductible expense is limited to double the highest federal per diem rate).
    • The educational or business program (meeting, event, seminar, convention) needs to be directly related to your business.
    • The cruise should not exceed a week or, if it does, non-business activity must not constitute 25% or more of the travel time (as defined by the IRS).
    • The cruise ship must be registered in the United States (Note: Many ships that travel to and from U.S. ports are not registered here).
    • The ship’s ports of call during your itinerary must be in the U.S. or U.S. possessions. Keep in mind that U.S. possessions include a long list of destinations, from the U.S. Virgin Islands to Guam.

    Note: There is an alternate approach that allows for deduction of a trip that takes place within the “North American Area” which includes, for example, Canada, Bermuda and the Bahamas – but different eligibility requirements may apply.

    You must prepare a written statement with specific details required by the IRS – and a second one from the event’s sponsoring organization – and include then with your tax return.

    The IRS does not view a business event on a cruise ship in the same way as it views a business event on land that you attend by traveling there on a cruise ship. There are advantages and disadvantages to these two scenarios, but you must select and plan your trip around one or the other (i.e. you cannot deduct the cruise as both a travel/transportation cost and as a hotel/lodging cost).

    The most important priority for any business owner considering taking a cruise for which they intend to seek an applicable tax deduction is to plan and document accordingly, from the moment you select the business event until the time you return home after the trip.

    To learn more about this and other tax strategies for business owners, contact the award-winning team at Haines & Lagerquist CPAs today by calling (301) 249-0703 or via email to cpa@hainesandlagerquist.com.

    For additional information:

    Tax Rules to Follow When Cruising for Business Purposes
    http://smallbusiness.foxbusiness.com/legal-hr/2011/10/07/tax-rules-to-follow-when-cruising-for-business-purposes/

    How to Deduct Your Cruise
    http://www.nolo.com/legal-encyclopedia/how-deduct-your-cruise.html

    Cruising for Tax Deductions
    http://www.cpa-connecticut.com/cruise-tax-deduction.html

    Business or Pleasure? Tax Traps
    http://www.americanbar.org/newsletter/publications/gp_solo_magazine_home/g p_solo_magazine_index/jacknewitz.html

    Image Credit: pmarkham (Flickr @ Creative Commons)

     

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