Americans
seem to always be on the move. The good news is that you can deduct many
of your work-related moving expenses. But it isn't always as easy as you
may
think.
Take the
test
The best thing about writing off
moving expenses is that the deduction is above the line, which means that
you don't have to worry about any itemized deduction phase out rules that
can deplete your big tax refund. The worst thing about the moving expense
rules is that they have become tougher over the past several years.
There are two tests to determine if
you qualify for the deduction. If you pass them, you can deduct your
moving expenses. Keep in mind, you can only take the deduction if you are
moving because of a job. It doesn't matter if it is a new job, the same
job or an old job - it just has to be job related.
The first test is the 50-mile test.
The distance between your new primary job and your former home must be at
least 50 miles greater than your old commute. If you lived 10 miles from
work and your new office is 45 miles from your old home, you will not
qualify. The new office must be at least 60 miles from your old home,
giving you a commute that is 50 miles longer.
The second test must show that you
moved for work and not just for a change of location. You must be employed
full time in the general area of your new job location for at least 39
weeks during the 12 months after the move. This means that you can switch
jobs, but you must remain employed.
The rules are different if you are self-employed, out
of the workforce or a part time employee. If you are a sole proprietor or
partner in a business, you can transfer
yourself to
Alaska if you feel the need and deduct the cost, as long as you meet the
50-mile and 39-week tests. There is an added test for self-employed
people. The test requires that you work full time in the area for 78 weeks
during the two years after you move.
If you are just reentering the
full-time workforce, you can claim the deduction if you move for a job.
Your new job and your former home must be 50 miles apart, and you must
pass the 39-week test.
If you are a married couple filing
jointly, only one of you will have to pass the tests. This can be a great
benefit if one spouse is self-employed. For example, if the wife is
transferred to a new office 40 miles from home, the moving expenses aren't
deductible and she may have to have a long commute. But with the husband
being self-employed, they can mover 50 or more miles from their current
home and all that is required is he meets the 39-week and 78-week
rules.
You are limited to deducting the
expenses that occur within one year of the new job's start
date.
Is it worth
it?
You know that you have passed all of
the tests to deduct your moving expenses, now you want to know what you
get in return. The moving deduction can be quite significant, but the IRS
is a little less generous than they used to be.
You are limited to the following
costs: the packing and shipping costs, the insurance on your belongings,
up to 30 days of storage fees, the cost of traveling to your new home
once, lodging but not meals while traveling to your new home, your actual
driving costs (15 cents per mile) and the cost of disconnecting and
reconnecting utilities at your old home and hookups at the new home.
This list of what isn't allowed is
much longer. You cannot deduct the expenses incurred from buying or
selling a home or acquiring or breaking a lease, apartment security
deposits, losses from selling or giving up club memberships, and driver's
license and car registration fees. You cannot deduct the cost of your
house hunting, either.
If any of the above items are used
for business purposes, you may be able to deduct some of the expenses as
business expenses.
Once you have rounded up all of your
qualifying expenses, complete IRS Form 3903. The resulting write off will
be on page one of your 1040.
A generous
boss
If your employer reimburses some or all of your
moving expenses, don't try to deduct them. You can't deduct moving
expenses paid by your employer.
Your employer can pay for your
moving costs in two ways: it can give you a tax-free reimbursement for the
amounts you can deduct or it can add the reimbursement to your
salary.
If you receive a tax-free
reimbursement you don't have to do anything else. The expenses are
basically deducted from you income because the reimbursement isn't
included in your wages. The amount of the reimbursement will be reported
as a nontaxable item on your W-2.
If your employer simply reimburses
you through your salary, then you need to fill out Form 3903 to receive a
deduction. You will have to do this if you are self-employed. You are able
to deduct only what the IRS allows, no matter how much you are reimbursed.
If your boss is very generous and reimburses you for meals, you will have
to pay income tax on that money.
You should be aware of one thing. If
your boss gives you a check to move before you actually start the moving
process, you may have a little extra thinking to do. What happens if you
get the check in December and move in January? It may seem odd, but you
can deduct the move in the year that you receive reimbursement, even if
you move the next tax year.
In this case, you shouldn't file
your taxes until you are completely moved. If you haven't moved by April
15, file for an extension until you are moved into your new home and can
prove all of your qualifying moving expenses.
