5 Point Checklist for Claiming Moving Expenses
Changing your job for a vertical movement in your career or starting that first job is always a pleasant experience for all of us. While the former increases your income and strengthens your resume, the latter gives you financial independence. But what if a job change or a new job makes you relocate? Even if you get a job promotion or a job transfer, you might be asked to relocate to a new place. Relocation, though good, also involves expenses. The cost of moving your residence to a new city and setting up a new home, all incur expenses.
The IRS gives you tax exemption on these expenses. Yes, your moving costs, in the context of your job, are allowed as deductions from your taxable income.
Amazing, isn’t it? But, before delighting in the exemption, do you know that there are certain rules regarding this exemption. Yes, to avail moving expenses as a deduction, you have to be eligible for some qualifying criteria. Here is a 5 point checklist for claiming moving expenses as a deduction:
1. The move should be because of your occupation
Salaried employees should move only if their job demands it. For self-employed individuals, the moving expenses are allowed as tax deductible only if the move is undertaken for business-related purposes, i.e. for expanding your business or for starting a new business.
2. You should qualify for two tests
To avail deduction for your moving expenses, you should qualify for two tests which are as follows:
- Distance Test – The new job location should be at least 50 miles farther than the distance between your old home and previous workplace. So, if earlier, your old workplace was 10 miles from your home, your new workplace should be at least 60 miles from your existing old home. To calculate the distance you should use the shortest possible route between the two places.
- Time Test – Your relocation should match the start of your new job at the new location. You should start your new job and work full time for at least 39 weeks in the first 12 months of your move. However, if you start working at the new location before moving in, you can claim the moving deductions under special circumstances. If you qualify for both these tests, the moving expenses would be tax deductible.
3. The moving expenses should qualify for tax deduction
Though the IRS allows moving expenses as a deduction, such expenses should be qualifying expenses in the sense that they are reasonable and essential for relocation.
Some qualifying moving expenses include:
- Cost of gas incurred when travelling to the new location using your vehicle
- Other travelling expenses like toll taxes, etc.
- Short-term storage required for storing your household goods
- Rent paid to trucks for moving your household articles
- Expenses incurred on buying packing boxes and cartons
- Cost of lodging incurred if travelling a long distance, etc.
Non-deductible expenses include:
- Expenses on trips taken for house hunting prior to moving
- Improvements made to home
- Mortgage penalties
- Temporary lodging before moving permanently
- Cost of meals purchased when moving to new location, etc.
Check if your expenses qualify for deduction or not.
4. Checking the reimbursement received from employer against actual costs
Your employer usually pays for the expenses incurred on relocation through reimbursing the costs incurred. If the reimbursement you receive from your employer is higher than the actual expenses incurred, the excess would be taxable as a part of your income. If, however, the reimbursement is lower than the actual costs incurred, the actual expenses incurred would be deducted as moving expenses.
5. Reporting of qualifying moving expenses
After you know which expenses can be availed as deduction, you should file it correctly with your tax return. IRS Form 3903 is required to be filled in and filed for claiming moving expenses. Line 1 of the Form requires the storage and shipping costs. Line 2 should be filled in with the costs of travel, gas and lodging (if sought). Line 4 contains the amount of reimbursement received from your employer. So, fill in the form correctly and submit it with your tax return.
The IRS does not have a limit on the amount of moving expenses which can be availed as deduction.
If you relocate for work purposes, the entire qualifying expenses incurred would qualify for deduction. Follow this checklist for a complete guide to claiming your moving expenses as deduction and lower your tax liability.