You might be surprised that taking a cruise ship as part of your business meeting in Mexico is considered deductible.
The great thing about Mexico is that it’s in the tax law–defined North American area, which means you don’t need any more critical business reason to deduct your trip there than if you were headed down Chicago, Illinois, or Scottsdale, Arizona.
Less-than-one-week rule
If your trip is for seven or fewer days (excluding the day of departure), you are traveling outside the 50 states. Still, inside the North American Area, the law allows you to deduct the entire cost of travel to and from this business destination, and Mexico fits this location rule.
Cruise ship transportation: The law authorizes any transportation to and from your travel destination as long as it is not lavish or extravagant.
The cruise ship cost is legally limited to ensure it is not a luxurious expense.
The daily luxury water limit is twice the federal per diem rate.
Example. Say you are going to travel by cruise ship in 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, a cruise ship costs $10,392. If you spend $12,000, your deduction is limited to $10,392. If you spend $8,000, you deduct $8,000.
Interested in utilizing this deduction? Let’s talk!