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Tax Implication of Moving

Relocation Expenses And Important US Tax Regulations

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You may not realize it, but when you move, tax returns for the year of the move are generally more complicated than other years. Moving can trigger one or more "taxable events". And this is something you should consider long before April 15th arrives!
You'll be happy to learn that the following states have NO state income tax:
New Hampshire
South Dakota
So, if you're moving to one of these states, consider yourself part of the lucky 20% in America! However, Florida has an Intangibles Tax, and New Hampshire and Tennessee have an Interest & Dividends Tax.
When you relocate, your employer may pay some of your relocation expenses. These expenses fall into one of three categories: deductible, excludable, or taxable. To first be considered a qualified move, the following tests must be met:
  1. The Distance Test

    . The distance from your old home to your new main place of business must be at least 50 miles farther than the distance from your old home to your old main place of business.
  2. The Time Test

    . You must work, or expect to work, in your new location for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location.
  3. Related to the Start of Work

    . You must incur moving expenses within the first 12-months following the time you report to work in the new job location.
If your employer reimburses you for the cost of transporting household goods and personal effects, 30 days of in-transit storage and traveling from the old location to the new, these are considered Excludable expenses and will not be considered as income. Deductible items are simply costs that you were not reimbursed for that qualify as allowable deductions.
If your company gives you a lump sum to pay for moving expenses, keep track of the actual costs that qualify as allowable moving expenses because you'll be able to report them on IRS form 3903 and deduct on your federal form 1040.
All other reimbursements such as temporary living, pre-move, house-hunting, meals, equity losses, etc. are taxable and will be reported as wages.

TIP: Keep Your Receipts!

The following is a list of expenses that can be deducted or excluded for your move:
  • Moving van costs
  • Insurance
  • Packing and unpacking
  • Disconnecting and reconnecting utilities
  • Lodging
  • Transportation
  • Storage
  • Tipping the van line driver
  • Cost of driving or shipping your car (10 cents per mile, gas, tolls)
  • Disassemble and reassemble costs for certain items (like a satellite, ice machine, aboveground pool, etc.)
Tax implications are also different between national and international moves. If you move to London, for example, you'll have to pay tax there. The good part is that it's deductible from your U.S. tax. Many countries, however, have tax treaties to encourage business between different countries. The U.S. will even waive income tax (up to $78,000 in 2001 and $80,000 from 2002 -2007) if you qualify for the Foreign Earned Income Tax Exclusion. For this, two tests must be met - the Bona Fide Residence test and the Physical Presence test.
Also, overseas assignments guarantee a roundtrip move to be paid for. This means that reasonable expenses--including housing costs, utilities, insurance, non-refundable fees for a lease, rental of furniture, parking and repairs--are tax deductible.
To take full advantage of the deductions outlined in this article or to receive additional information, we recommend that you use a professional tax preparer experienced in this field.
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