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Business Travel Expense & IRS Deductions

Luxury Water Travel - Deduct Your Cruise

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 travel agent, 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 $1,600  
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.

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