You may not have thought of this, but taking a cruise ship to Mexico for a business meeting is acceptable as a deductible form of transportation!
Because Mexico is in the tax law–defined North American area, the law says that you need no stronger business reason to deduct your trip to Mexico than you need to deduct a trip to Chicago, Illinois, or Scottsdale, Arizona.
Less-than-one-week rule. If your trip is outside the 50 states but inside the North American area and if the trip is for seven or fewer days (excluding the day of departure), then the law allows you to deduct the entire cost of travel to and from this business destination. Mexico fits this location rule.
Cruise ship transportation. The law authorizes any type of transportation to and from your travel destination, so long as it is not lavish or extravagant. The cruise ship cost is not a lavish or extravagant expense, as the law precludes this possibility by placing luxury water limits on this type of travel.
The daily luxury water limit is twice the highest federal per diem rate allowable at the time of your travel.
Example. Say you are going to travel by cruise ship during September 2022. The $433 maximum federal per diem rate for September 2022 comes from Nantucket, Massachusetts. Your daily luxury water limit is $866 (2 x $433).
Thus, for you and your spouse, two business travelers, the daily limit is $1,732. On a six-night cruise, that’s a cruise-ship cost ceiling of $10,392. If you spend $12,000, your deduction is limited to $10,392. If you spend $8,000, you deduct $8,000.
Of course the trip has to be for business, and the IRS has strict rules and guidance on what qualifies as a business trip. The primary purpose of a trip is determined by looking at the facts and circumstances of each case. An important factor is the amount of time you spent on personal activities during the trip as compared to the amount of time spent on activities directly relating to business.
Round‑trip transportation to a business destination is all or nothing. If the trip is primarily for business, it is 100% deductible. If the trip is primarily personal, none of it is deductible. For example, a taxpayer that spends 20% of his personal vacation on business cannot take 20% of the round‑trip airline ticket as a deduction.
At Corridor Consulting we help our clients structure their business trip(s) to ensure they meet those strict requirements, and should the IRS ever question the expense you’ll have adequate records and documentation to substantiate the deduction. You can schedule a consultation with us here.
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If you need any help regarding these issues, please reach out to Corridor Consulting, my firm would love to assist you in any tax planning issues you may have. If you’d like to schedule a consultation you can do so here.
This article is not professional tax or legal advice for your specific circumstances. Consult with your professional adviser to better understand how these items may impact you, or how they’ve changed
