A Tax-Deductible Cruise to Mexico for a Business Meeting?
If you are doing business in Mexico or planning a business meeting down there, one creative method of transportation is taking a cruise. It can be a fun and relaxing way to make your way down south while also offering a great business tax deduction opportunity. You can enjoy a little vacation and still write some—or all—of the cruise off as a business expense!
Taking a cruise ship to Mexico for a business meeting is acceptable as a deductible form of transportation. This is because Mexico is in the tax-law-defined North American area. Traveling to Mexico for a business meeting can be deducted just like a trip to anywhere in the United States. There are a few tax rules to understand, though.
Less Than One Week
The tax law allows you to deduct the entire cost of travel to and from your business destination—as long as your trip outside the U.S. is located inside the North American area AND the trip is for seven (7) or fewer days. This travel time does not include the day of departure. Mexico meets this North America location requirement.
Transportation Via Cruise Ship
The tax law authorizes any type of transportation to and from your business travel destination, as long as it is not extravagant or lavish. The cost of an average cruise ship will not be considered an extravagant or lavish expense. Therefore, the law precludes the placing of luxury water limits on this type of travel to an eligible North American destination like Mexico. The daily luxury water limit is twice the highest federal per diem rate allowable at the time of your travel.
Case Study
For example, let’s say you are traveling via cruise ship this fall from San Diego to Acapulco, where you have a business meeting scheduled. The maximum federal per diem luxury water rate for September 2022 is $433. You are allowed to deduct twice that ($866) per business traveler. If you are traveling with your wife as your fellow business traveler, you will be able to deduct a daily limit of $1,732.
Over the course of a six-night Mexican cruise, your ceiling would be $10,392 (six days times $1,732 for two business travelers). If you spend more than that on your trip, your deduction will be limited to $10,392. If you spend less, you will be deduct the full amount up to $10,392.
There are always some gray areas as to what constitutes a “business trip.” You do have to be careful about trying to write off vacation travel expenses, but a cruise trip to Mexico is treated like a flight to New York as long as you have a reasonable business justification to claim the travel deduction.
It’s important to consult with your tax advisor and business advisor to understand what business and personal travel expenses can and cannot be deducted. For all your tax planning and business expense management needs, contact Illumination Wealth for an introductory financial consultation.