Deducting Moving Expenses

After reading our post detailing several tips for moving to start your new medical position, Bill at FP Pad suggested that I write a post talking about the potential for deducting the expenses you incur during your move on your taxes. Reducing taxes for something you have to do anyway? We’re all over that!

Why are Moving Expenses Deductible?

One of the most effective ways to get people to do something is through the use money – especially in the capitalist society in which we live.  The government understands this and encourages its citizens to perform what it considers to be good deeds, for lack of a better word, that will benefit society through the use of taxes – either penalties or breaks.  Here, the government is encouraging you to move to start a new position by giving you a break on the amount of money you have to spend in order to relocate for a new, assumedly better, position which they will then be able to tax and recover the money they let you have.  Fun stuff, this whole taxation thing!

Are You Eligibile to Deduct Your Moving Expenses?

The following items are considered:

1. Your move should occur within 1 year after your start date
2. Your new home should be closer to your new job than your old home was
3. Math time! You must meet the following formula:
   (distance from old home to new job site – distance from old home to old job site) >= 50 miles.  Your old job site can be your school or residency program.  So if you live 4 miles away from your medical school now and are moving to a residency program that is 54 miles away from your old residence, you’d qualify – (54 – 4) >= 50.
4. You will work for 39 of the next 52 weeks after you arrive at your new location

The distance test is probably the criteria that will trip up the most people.  The goverment doesn’t want to give you a break if you’re not moving too far away…

Which Moving Expenses are Deductible?

You must keep the reasonableness test in mind when doing calculating your expenses.  The routes you take must be the shorts and most economical to deduct them.  You can’t take your Great American West Vacation while moving from Louisville, Kentucky to New York City.  If you do take your vacation, though, you are still able to deduct what the direct cost of moving from your home to the new location would be.

The following expenses are typically deductible:

• Transportation by Personal Vehicle – 24 cents/mile
• Cost of packing, crating, and transporting household goods and personal effects
• Cost of connecting or disconnecting utilities
• Cost of shipping your vehicle or pets
• Storage and insurance expenses for you goods for 30 days from the day you leave your old residence and before you enter your new home
• Transportation and lodging expense for you and your family during the move (one trip per person, doesn’t have to be the same trip)

What You Have to Do to Get Your Deduction

Keep records of everything!  Everything includes the following:

• Canceled checks for expenses
• Credit card statements for related expenses
• Mileage logs (detail the date, starting mileage, ending mileage, and reason for the trip)
• Receipts
• Bills

Also, try to keep them organized so that when tax time comes, you’re not scrambling to find things at the last minute.

Tax Information if Your New Employer Reimburses Your Move

If you are fortunate enough to have an employer pay for your moving expenses, be sure to find out what sort of plan it is before you take them up on it.  There are two types of plans:

Accountable – The move is for business/working reasons, you have to provide receipts to your employer, and you return any excess reimbursement to your employer.  For accountable plan moves, you won’t be taxed on the money the company gives you for the move.

Nonaccountable – If the conditions listed above aren’t met, the reimbursement arrangement is considered nonaccountable.  This means that any money you receive to help you with your move will be counted as income by the IRS and you will be taxed on it.

Most employers, though, should stick with accountable plans and you should be able to take advantage of this fantastic labor saving benefit tax free.  You should see them in Box 12 of your W2 form for the tax year in which you moved, but it’s just there for the record – no tax should need to be paid.

If you have allowable expenses above those that your employer reimbursed, fill out IRS form 3903 to make sure you get every deduction you have coming to you!  The form has places for your expenses and reimbursements received.

You can read all the details about moving expense deduction in the IRS’s Publication 521. It also includes a nice illustrated example at the end of the document that you can adjust to fit your situation.

Tags: moving, relocation, Taxes

Related posts:

1. Moving Tips for Your New Residency, Fellowship, or Job
2. Improve Your Financial Situation by Decluttering

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matt Taxes moving, relocation, Taxes