IRS Moving Expense Deductions
A move can be one of the most consequential acts of a person’s career. It can significantly alter the trajectory of that career and a person’s wider opportunities. Moves have made and broken millions of people. Throughout the process, any small advantage can be helpful. One common advantage that individuals avail themselves of is the moving deductions provided by the IRS. An IRS moving deduction can be helpful in easing the burden of a move and reducing a person’s tax obligations.
Like any other tax deduction, there are a number of restrictions imposed by the IRS on anyone considering a moving deduction. The time restraint is definitely the biggest restraint on people who are looking to use the moving deduction. There are certain years for which a person cannot take their moving deduction. This restraint came from the passage of the tax cut and reform bill in 2017. That bill reduced overall tax rates while also considerably reducing a large number of deductions. For years after 2018, only active duty military members can claim this deduction.
There are other restrictions that a person has to deal with when they are looking at moving deductions. One of these is a year-long time restraint. The IRS does not want to give an incentive to people who move on a regular basis. Therefore, a person has to stay in the place that they moved to for at least a year. This process ensures that people are using their moving deduction on a move that they feel strongly about. There is also a restriction related to the distance of a move. People have to make a move that adds at least 50 miles onto their daily commute to work.
All of these restrictions are multiplied when one is considering using state-level tax rebates for their move. Some states, such as California, offer their own repeat of the IRS moving deduction that a person can apply on their state taxes. Many of these restrictions are similar to those from the federal government and are based on guidelines provided by the IRS. People should look carefully at both state and federal law regarding deductions if they hope to make as much as they can from a moving deduction.
What is the deduction?
For a qualifying moving event, the IRS allows a person to deduct practically all of the expenses associated with their move. They are able to deduct the cost of hiring movers and renting trucks for the move. If they drive their personal vehicle, an individual can deduct the gasoline, mileage, and maintenance costs associated with the move.
A person can also deduct some of the ancillary expenses associated with the move. Many people are not able to easily transfer all of their things from one home to another. They have to make use of storage units for short or extended periods of time. The IRS allows a person to deduct the costs of that unit for 30 days. This deduction is significantly different from a tax credit. With a tax credit, a person is actually paid money at tax time for taking a particular action. A tax deduction merely reduces the amount of money that is assessed by the IRS for tax purposes at the end of the year. The actual amount owed drops by much less than the deduction.
What to do
Anyone who is considering taking the moving deduction should focus on their move first. They should not let a deduction dictate how they move and who they choose to help them move. The deduction will not be as significant as peace of mind or the quality of the move if a person works with an inferior group or company. Once a person moves, he or she should keep track of all of the associated expenses and claim them as a deduction. This claim will often reduce their tax bill by a certain amount.
The moving deduction is one of the few deductions that can be accepted and then returned to the IRS. The person and the IRS wait to see if they end up staying in a particular area for the year required by the statute. If they do stay, they can keep the deduction. If not, they have to return the deduction and calculate a certain higher amount of tax owed. The individual can then pay off that tax for an earlier year when they file their taxes for the next year. The IRS only requires that a person give back their deduction in the year where they miss the thresholds associated with their deduction.
One of the most important steps that a person can take when they are considering using a moving deduction is to consult a tax professional. The tax professional will point out the numerous expenses that they had associated with their move. They can put together an itemized list of all of the associated moving expenses along with the receipts for those expenses. This process would make a potential future audit easier to navigate. A tax professional can also help a person keep track of the possible process of paying back the deduction at a later date.
Paying back a deduction is often not a process that is on a person’s mind when they are moving. They may have just lost a job or undergone some other sort of crisis. As a result, they should be able to have someone else look after their expenses and their tax obligations. The tax professional will be able to handle this moving deduction and remind a person when and what they need to pay back in order to stay in compliance with all applicable tax laws.
In addition, a tax professional often takes on a certain amount of responsibility for an audit when they file and process a person’s taxes. Anyone who has moved and is claiming a moving deduction will automatically increase their chances for an audit. They may have also taken on deductions associated with the sale of their house. More deductions means that a person moves higher up on the list of people who are audited by the IRS every year. Having a tax professional on a person’s side can be enormously helpful when dealing with the stress of an audit.
Taking a moving deduction is a process that one must be careful about. They should contact a tax professional in order to figure out whether this act is right for them. A moving deduction can be invalidated by federal law or the circumstances of the move. It can also be a helpful tax item that helps a person reduce the financial difficulties of an extraordinary moment in their lives.
See also: How to Finance a Move