Knowledge Center

Luxury Water Transportation

Tax Deductibility via Luxury Water Transportation

The 1986 Tax Reform Act still includes deductions for business travel using "Luxury Water Transportation". This clause pre-dates air travel, and is now an underutilized option in the tax code, contained in IRS Publication 463. Incentive programs which typically have limited business content could easily deduct the cost of their cruise (up to $762 per person, per day) as "transportation to a land based meeting" which can be arranged in one of your ports of call. Discuss it with your tax advisor or lawyer, and decide for yourself.

From IRS 2008 publication 463 (which falls under “Individual travel”)

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 2008 is shown in the following table.




Daily Limit




on Luxury


Per Diem


Water Travel

Jan. 1 - Jan 31




Feb. 1 – Mar. 31




Apr. 1 – June 30




July 1 - August 31




Sept. 1 - Sept. 30




Oct. 1 – Dec. 31





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 $4,200. Caroline's deduction for the cruise cannot exceed $3,696 (6 days × $616 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.


In the previous example, Caroline's luxury water travel had a total cost of $4,200. Of that amount, $1,900 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



50% limit

× .50


Allowable meals & entertainment

$ 950


Other travel expenses

+ 2,300


Allowable cost before the daily limit


Daily limit for May 2008



Times number of days

× 6


Maximum luxury water travel deduction


Amount of allowable deduction


Caroline's deduction for her cruise is limited to $3,250, 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.


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.