Tuesday, October 23, 2007

Cruise Ship Entertainer Gets No Tax Breaks

Many months ago I received the email below from Charles, a cruise ship entertainer. Charles and I have exchanged email over these months. I had questions for him prompted by my many conversations and correspondence with the IRS. At times I waited weeks for a response from the advanced tax law section of the IRS.

Here's the situation:

Hi June,

I really appreciate your site and what it has to offer... Excellent, clear, understandable advice and information.

Here's my question in two parts: I work as a guest entertainer on cruise ships. I spend most of the year away with a few weeks at home.

I also hire dancers and technicians on the ship for my show and pay them in cash onboard. They are not US citizens and do not get a 1099 from me. I simply have a record of paying them. Do I need to send out 1099's? Is there another way I should do this? It adds up over the year to a considerable amount.

The second part is that if I'm spending 330 days outside the US on the ship, do I qualify for the foreign earned income exclusion? Or, if not, since I pay for meals, etc. is there a per diem amount I can use for those days out at sea or in port in other countries.

There's not a lot of info for us cruise ship workers, but I hope to learn more.


I also learned from Charles that the ship is registered in the Bahamas and he is paid by the cruise line. He visits up to 20 or more countries each year and is in US ports sometimes for a few hours. He's in international waters about 95% of the time.

When not on a ship he lives in Las Vegas, Nevada. He has a house there and a Nevada driver's license. Charles says that he does not consider Las Vegas his place of residence since he is never there. "I live on a boat but visit my house once in a while to dust," is what he tells people.

The ship provides accommodations, but Charles pays extra for meals and incidentals.

My findings ...
The good news is that Charles is doing it right regarding the
independent performers he hires. His payments to them are business deductions and all he must do is keep a record of payment. No 1099 is required. This is because the work is being performed outside the US.

The bad news is that someone in Charles' working situation does not get a business travel deduction for meals and incidentals. The IRS gives a deduction for expenses incurred while away from home, such as the per diem for meals and incidentals, to alleviate the burden on someone whose business needs require him to maintain two homes. "Home" in this circumstance refers to the principal place of work, not the personal residence. The exception for this circumstance is when the work is "temporary."

And then there's even more bad news. A US citizen may exclude up to $82,400 income earned in a foreign country or countries if he is a bona fide resident of another country or countries. [Read more about foreign earned income here.]The cruise ship travels to many countries and through international waters. Charles resides on the ship. The Bahamanian ship is not considered a residence in the Bahamas. Charles is an itinerant and so gets no foreign earned income exclusion.


trevor said...

do Food & Beverage Managers on US cruise ships in Foreign waters 50=% time get any tax break??


trevor said...

are there tax breaks for Managers on board US vessels (Cruise luxury liners) in International waters???

what if the company is non US and am on board a ship out of the US waters???AM a permenent resident of The US since 1993..

June Walker said...


Assuming you are an indie you may deduct all the business expenses allowed to a self-employed. You may receive a list of those expenses by emailing your request to me from my blog.

You may take a meals & incidentals deduction if you must maintain a home in the States -- for business purposes -- while temporarily living on the ship.

You may get the foreign income exclusion if you have that home in the States and are out of the States at least 330 days per year.

I have really pared down those answers. The tax situation you are in is complex and should be discussed with your tax pro.

-- June

Andrew said...

I am a cruise ship worker, but I have dual US/Canadian Citizenship,I have a home in Canada, I receive a W2 for my work so I file US taxes, I do not file in Canada, and have had myself classified as a non-resident. I have US Bank accounts as my only tie, but I could sever these ties if it would alleviate my tax burden.

June Walker said...

Hi Andrew,

I am an indie tax expert and the goal of my blog is to aid indies in their solo ventures. Yours is a W-2 question.

A cardiologist could deliver a baby. And an obstetrician could handle someone having a heart attack but each keeps to her specialty, as do I.

The IRS can answer your question. Call the agency at 800.829.1040.


Josh said...

What is the story with respect to California (or other) state taxes for someone who resides in CA the few weeks a year she is not on ship?

Is the cruise ship income taxable in CA?

June Walker said...

Josh --

You pay tax on income -- wherever it's earned -- to the state in which you reside. Where you reside is determined not just by the amount of time spent in a state but also where you vote, which state drivers license you have, etc. Read my posts on "taxes -- state / nonresident state" for more info.

-- June

Revka Stearns said...

I think your post answered my question, but I want to make sure.

I live in the US and have my own web design business in the US. However, I send some of my projects to a Swedish national who lives in Brazil. All her work is done in Brazil.

Every month, I create an invoice "from" her detailing the work she has done and the payment to be made to her. She is paid solely on a project basis.

Do I need to file any IRS forms for the payments I make to her, or is it sufficient to report those payments in the expenses section of my taxes?

Thanks for your very informative blog.

Fred said...

I am a self-employed musician in Las Vegas. Last year, I did 2 contracts (218 days total) as a musician on a cruise ship while maintaining a residence in Las Vegas. The cruise line is a US company and I will be receiving a W2 instead of a 1099. There was no withholding for social security or medicare. Two questions: 1) Will I owe 7.65% of my gross wages for FICA and medicare? 2) Are there any expenses that I can deduct since I spent virtually all my time outside the US?

Thank you.


June Walker said...

Dear Fred,

That you received a W2 means that you were treated as an employee.

That there was no withholding on the W2 for Social Security tax or Medicare says that something is messed up.

You need to see a tax pro who can talk directly with the cruise ship accounting/bookkeping office in order to straighten this out. ASAP!!!

-- June

Patricia said...

Can someone answer this? I am a US Citizen, I am a Mexican Resident. I am offered a job on a cruiseship but my employer is Brittish company that owns the store concessions. What will my tax status be? I only spend 6 weeks a year in the states.

Patricia said...

Please advise. US citizen, Mexican resident, only return to the states 4 weeks a year. Job offer from a british company that owns concessions on cruiseship. What will my tax status be?