Moving for Work Can Trigger a Tax Deduction
Posted By Zina Kumok on March 1, 2017 at 2:28 pm
Moving ranks as one of the top five stressful life events anyone can experience, according to the HealthStatus.com research. Some studies even show it can be more taxing than divorce. Packing, purging and unloading boxes can take a toll on anyone, especially if you’re paying for it out of your own pocket. Fortunately, the IRS wants to help. The U.S. tax code allows a tax deduction for some moving expenses in some situations.
That doesn’t mean you can make a vacation out of your cross-country trip and expect reimbursement for water park tickets, but the IRS does allow people to pay a little less on their taxes if they have a job-related move.
Read below for more on what you can deduct, how to do it and how to know if your move counts.
When you should explore a moving tax deduction
To get a tax deduction for moving expenses, you must pass what the IRS calls the distance test and time test. Basically, your move has to coincide directly with your new job for any related expenses to qualify for a tax deduction.
The distance test requires that your new home must be at least 50 miles farther than the difference between your old home and old workplace. For example, if you live 25 miles away from your office and receive a job offer to a new city, your total move must be at least 75 miles. This test proves that you have to move for your new job, and that you’re not doing it for the chance to buy a new home or relocate for fun.
The time test says you can deduct expenses for an employment change only if you work 39 weeks within the first year of your move.
You can deduct moving expenses even if you’re self-employed. Web developer and blogger Eric Rosenberg of Personal Profitability moved from Portland to Los Angeles last year with his wife and newborn. Even though he was self-employed, he was still able to deduct his expenses.
“As long as you move at least 50 miles and work on your business full-time in your new location for at least two years, you can safely deduct your moving expenses,” he says. More specifically, the time test for those who are self-employed includes working 78 weeks within the first two years (with at least half of those weeks coming in the first year)..
However, you cannot take a tax deduction for your moving expenses if your employer compensated you more than what you spent in total on the relocation. Some employers provide a lump sum and allow you to keep whatever you didn’t use for your move. If that’s your situation, you aren’t allowed to deduct anything on your taxes.
This IRS form will help you figure out what your total costs were, what your employer gave you and whether you can deduct the difference.
What moving expenses are deductible?
Moving is expensive and can require packing supplies, new luggage, storage solutions and more. But not all of that is deductible. The IRS provides a questionnaire to help you determine if your move and its related costs are deductible.
In general, deductible moving expenses include:
- Transportation and storage
- Travel costs
- Hotel stays
Here are a list of expenses that aren’t deductible, even though they’re moving-related:
- Temporary housing
- Pet boarding during the move
- Mileage if you took an indirect route
- Traveling to the area before the move to house hunt or plan
If you have questions, talk to a tax professional, contact the customer service department on your tax software, or call the IRS. But if you’re not sure whether an expense is deductible, then leave it off your return unless you find a substantiating source. The money you might save won’t be worth the worry if you get audited or have to account for something that’s not up to par.
Keep a record of all your moving-related expenses and your receipts if possible. The IRS won’t ask for it on your return, but it’s always best to be prepared in case you have to prove what you spent later. Also, some people prefer to deduct the actual amount they paid for gas instead of the miles they drove (depending on what’s more cost efficient). To do that, you’ll need to keep your receipts. It’s not enough to have them on a credit card or bank statement.
Moving will always be time-consuming and exhausting, but at least keeping up with your potential tax deduction shouldn’t have to be.