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 2003 is shown in the following table.
| 2003 Dates | Highest Federal Per Diem | Daily Limit on Luxury Water Travel |
| Jan. 1-Sep. 30 | $258 | $516 |
| Oct. 1-Dec. 31 | $259 | $518 |
Example. 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 $3,500. Caroline's deduction for the cruise cannot exceed $3,096 (6 days × $516 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.
Example. In the previous example, Caroline's luxury water travel had a total cost of $3,500. Of that amount, $1,600 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 | $1,600 | |
| 50% limit | × .50 | |
| Allowable meals & entertainment | $ 800 | |
| Other travel expenses | + 1,900 | |
| Allowable cost before the daily limit | $2,700 | |
| Daily limit for May 2003 | $516 | |
| Times number of days | × 6 | |
| Maximum luxury water travel deduction | $3,096 | |
| Amount of allowable deduction | $2,700 | |
Caroline's deduction for her cruise is limited to $2,700, 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.
Exceptions
The daily limit on luxury water travel 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.
Information courtesy of the Internal Revenue Service.
