18 Feb Is an educational cruise tax deductible
An annual question of our students is as follows: “Is an educational cruise is tax deductible? The short answer is yes. However, the student and the cruise must meet or exceed IRS guidelines. The two parties involved are the Host and the Student. Here is what both must provide to make it an acceptable income tax deduction.
Host Duties
There are three items that the host of an educational cruise should provide their students. These items will assist them in determining if the expense of the trip could be a tax-deductible business expense.
First the Host must provide adequate training on a daily basis for their student to attend. A printed agenda can be used to establish this.
Secondly, attendance slips or cards should be signed by the host for each class the student attends.
Third, a written statement should be provided by the Host. It should be signed by an officer of the organization or group sponsoring the meeting. It should include the synopsis and agenda.
Most importantly: Only your income tax adviser and ultimately the IRS have the final decision as to whether or not your educational cruise is tax deductible. The Host cannot make a decision as to whether or not the course syllabus meets the requirements for each individual student to claim the educational cruise as a tax deductible event.
The Host can only assist the student with the record keeping aspect of the training.
Student Duties
Students need to meet the IRS rules for deducting their expenses as business-related education and travel expenses. Even with PERFECT record keeping the business expenses may not be fully or partially tax deductible. The other issue is that their tax-deductible travel expenses for the trip could be limited.
What is Deductible
The IRS has numerous rules and regulations the student must comply with in order to determine if business and travel, lodging and educational expense of a cruise can be deducted as business-related educational and travel expenses. In order for expenses for a cruise that includes an educational convention, seminar, or similar meeting or event on the ship to be tax-deductible, the cruise-related educational expenses must meet the IRS rules for deducting business-related education expenses. Additionally the cruise-related travel expenses must meet the IRS rules for deducting business-related travel expenses.
Deductible Expenses
Educational expenses: Regardless of where an educational event is held, under IRS rules, educational expenses a taxpayer incurs in preparation for starting a business in a new or different field or profession are not deductible either as business start-up expenditures or current business expenses, rather they are non-deductible personal expenses.
Deductions for business-related educational expenses are allowable. They are only allowed if they are considered qualified work-related education and meet certain additional tests. As indicated in the following discussion, the IRS rules define qualifying work-related education as “education that meets at least one of the following two tests.
- The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
- The education maintains or improves skills needed in your present work.
However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:
- Is needed to meet the minimum educational requirements of your present trade or business, or
- Is part of a program of study that will qualify you for a new trade or business…”
https://www.irs.gov/pub/irs-pdf/p970.pdf (see Business Deduction for Work-Related Education on page 59)
Additional information on business-related and personal educational expenses can be found in Publication 970 above.
Travel Expenses
Travel and transportation expenses incurred for qualifying work-related education expenses are generally deductible subject to the same rules as travel and transportation expenses for other business purposes.
Travel and transportation expenses incurred for non-deductible personal educational expenses are not deductible as business expenses. The tax deductibility of travel expenses on a particular trip will depend on whether the trip occurs within or outside the U.S. and how much of the trip was business related. Also, with travel expenses involving cruise ships, due to extensive abuses involving tax deductions of conventions and seminars on cruise ships, the IRS rules allowing their deduction as business-related travel expenses were tightened and limited several years ago.
Deduction Limitation
Under current tax law, taxpayers can deduct up to $2,000 per year of their expenses of attending conventions, seminars, or similar meetings or events held on cruise ships if certain conditions are met.
All ships that sail are considered cruise ships. You can review IRS Publication 463 below, which discusses the rules with respect to business-related travel expenses within and outside the U.S. and travel involving cruise ships. With respect to cruise ship travel, Publication 463 explains…
“Cruise Ships
Cruise Ships
All ships that sail are considered cruise ships. The taxpayer can deduct these expenses only if all of the following requirements are met.
- The convention, seminar, or meeting is directly related to their trade or business.
- The cruise ship is a vessel registered in the United States.
- All of the cruise ship’s ports of call are in the United States or in possessions of the United States.
- The taxpayer must attach to their return a written statement signed by them that includes information about:
- The total days of the trip (not including the days of transportation to and from the cruise ship port),
- The number of hours each day that the student devoted to scheduled business activities, and
- A program of the scheduled business activities of the meeting.
- The Student must attach to their return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:
- A schedule of the business activities of each day of the meeting, and
- The number of hours the student attended the scheduled business activities.”
https://www.irs.gov/publications/p463#en_US_2017_publink100033849
https://www.irs.gov/publications/p463 (see the Travel section)
Who we Chose
We have found one group who offers an educational cruise that meets the standards required by the IRS. There are assuredly other cruises but the National Real Estate Investors Association, Inc. has got educational cruises down to a science. They have signature cards for each and every class. A published agenda in booklet format, and oh so much more.
Disclaimer
Illinois REIA and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.
Good Luck and Good Investing
George Skidis
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