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.

Best,
Charles

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.