Deducting Moving expeses

If you have moved from one job to another expenses related to move can be deducted from the tax return and can lead to substantial tax saving , this deduction is often over looked if the return is Self prepared . Below are the criteria to claim the deduction.

Expenses   incurred in moving   to a new principal residence are deductible if the move   is job related  These expenses   are deductible above the line in computing adjusted gross income. Moving   expenses   (for both foreign and domestic moves  ) are first reported on Form 3903 (Moving   Expenses  ). The total deductible expense   is then carried to line 26 of Form 1040 as an adjustment to gross income.

Advice: When a taxpayer's mailing address changes, a Form 8822 (Change of Address) should be filed with the IRS to change the taxpayer's address of record. This helps ensure that any future correspondence from the IRS is timely received and helps avoid any risk of not receiving IRS notices mailed to the taxpayer's last known address. A taxpayer's address of record generally is updated automatically when a return showing a new address is filed and processed by the IRS; however, the IRS maintains income tax records separate from gift, estate, and generation-skipping tax records. Thus, filing a Form 1040 showing a new address will not necessarily update the taxpayer's address of record for gift tax returns. Filing a properly completed Form 8822 ensures that the IRS has a taxpayer's new address for all federal tax matters.

 

Deductible Moving Expenses

The following expenses are deductible if the move is job related

1. The cost of transporting household goods and personal effects from the former residence to the new residence. This includes the cost to pack and crate, store, and insure household goods and personal effects within any period of 30 days in a row after they were moved   from the taxpayer's old home and before they were delivered to the new home.

 2. The cost of traveling from the former residence to the new residence. (Traveling expenses   include lodging but not meals.)

 Automobile expenses   can be calculated per mile in lieu of actual expenses  

Nondeductible Moving   Expenses 

Moving   expenses   other than those specifically allowed as deductions (see preceding discussion) are not deductible. Common nondeductible moving   expenses   include:

1. Meals while moving   from an old residence to a new residence.

2. Travel expenses  , meals, and lodging for a pre-move   house-hunting trip.

3. Meals and lodging while occupying temporary quarters in the area of the new job.

4. Expenses  of buying or selling a home or of entering or breaking a lease.

 Move Must Be Job-related

For moving   expenses   to be deductible, the move   must be job related. A move   is job related if the taxpayer meets two tests-(1) the time test and (2) the distance test .The time test requires the taxpayer to be employed full-time in the general location of the move for at least 39 weeks during the 12-month period following arrival at the new location. Employment need not be with same employer for all 39 weeks. A self-employed taxpayer must work full-time (at his own business or as an employee) for at least 39 weeks during the first 12 months and for at least 78 weeks during the 24-month period following the move. The distance test generally requires the new principal place of work to be at least 50 miles farther from a taxpayer's former home than his former principal place of work. (In other words, had the taxpayer not moved, commuting to the new work location would have increased his commute by 50 miles or more when compared to the commute to the prior workplace.)

For a taxpayer that goes to work full-time for the first time (e.g., college graduate), the taxpayer's place of work must be at least 50 miles from the taxpayer's former home to meet the distance test. This distance test also applies to a taxpayer returning to full-time work after a substantial period of part-time work or unemployment .

If a taxpayer claims a moving expense deduction with the expectation that the two tests will be satisfied and later fails to meet one or both tests, the amount deducted should be included in gross income for the first year that one or both of the tests are not satisfied . Alternatively, the taxpayer can amend his return for the year the moving expense was deducted .

A situation commonly encountered by two-earner families is for one spouse to be transferred, thus requiring the other spouse to find employment in the new location. The move   often is accomplished in two stages, with one spouse moving   immediately to take the new position and the other following later. However, moving   expenses   incurred more than a year after the start of a new job may not be deductible, depending on the particular facts and circumstances causing the delay

 Employer Reimbursements of Moving   Expenses 

Employer-paid moving   expenses   paid to the employee are reported on the employee's Form W-2. Employers handle employee moving   expenses   as follows: (1) deductible moving   expenses   paid by the employer to a third party or provided by the employer in-kind are not reported on Form W-2, (2) deductible moving   expense   reimbursements the employer pays directly to the employee are reported in box 12 of Form W-2 and identified with Code P, and (3) employer reimbursements for nondeductible moving   expenses   are included in the employee's taxable wages reported in box 1 of Form W-2.

When an employee is reimbursed for deductible moving   expenses   (i.e., shown with Code P in box 12 of Form W-2), the reimbursement is reported on Form 3903 along with all deductible moving   expenses   the employee incurred if the deductible moving   expenses   exceed the employer reimbursement. The excess expense   is then carried to and deducted on line 26 of Form 1040. If reimbursed moving   expenses   exceed actual deductible expenses   incurred, the excess is carried from Form W-2 to line 7 of Form 1040 and reported as additional taxable wages. The taxpayer need not file Form 3903if deductible moving   expenses   equal the amount of reimbursed moving   expenses   included in box 12 of Form W-2).

If an employee's entire reimbursement is included in box 1 of Form W-2,Form 3903should be filed with any allowable expenses   included. Reimbursements received are not included on the Form 3903when reported to the taxpayer as wages (i.e., box 1 of Form W-2).

Reimbursement Received and Expenses Paid in Different Tax Years

Generally, cash-basis taxpayers deduct moving expenses in the year paid, but often the reimbursement is received in the preceding or following year. If this occurs, the taxpayer can choose to deduct the expenses in the year of reimbursement if (1) the expenses were paid in a year before the year of reimbursement, or (2) the expenses were paid in the year immediately after the year of reimbursement but on or before the due date (including extensions) for filing the tax return for the year of the reimbursement . By reporting deductions in the year of reimbursement, taxpayers can avoid prepaying tax on the reimbursement income by matching revenues and expenses   in the year incurred.

A taxpayer who wants to deduct moving   expenses   in the year of reimbursement simply deducts them in that year. No special attachments or statements are required to document the election .