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Back to Basics Part XVI – Form 3903 – Moving Expenses
Filed under: Back to Basics | Tags: 39 weeks, 50 miles, 78 weeks, distance, Form 3903, Gas, hotel, house hunting, laid off, leases, lodging, meals, military, move, moving expenses, packing, parking, reimbursement, retiring, security deposits, time, tools, transferred, transportation, utilities
Leave a comment Originally published in the Cedar Street Times
June 12, 2015
The U.S. Census Bureau estimates that average Americans will move 11.7 times in their lifetimes, with 6.4 of those moves between the ages of 18 and 45. Most of those moves between 18 and 45 will likely be work related moves that will qualify people for tax breaks on the expenses incurred during the moves. Today we will be talking about Form 3903 – Moving Expenses. If you would like to catch up on our Back to Basics series on personal tax returns, prior articles are republished on my website at www.tlongcpa.com/blog .
A lot of people may not realize they can deduct expenses related to a move. It is true, that in order to receive preferable tax treatment, a move must have a change of work location component, but it does not actually mean you have to find a job before you move, or even be the reason you move in the first place. You could move to the Monterey Peninsula, or anywhere for that matter, simply because it is beautiful, and you could still deduct moving expenses as long as you meet two primary tests – time and distance.
The time related test says that you must have a full-time job for 39 weeks out of the first 52 weeks in your new location. You do not have to know in advance. The weeks do not have to be contiguous, nor do they even have to be with the same company, or even start when you arrive, but they do need to be full-time. There are some exceptions to this 39 week requirement, such as getting laid off, getting transferred by your employer, or retiring to the U.S. from another country. Another out for you is to keel over and die, at which point your executor can still claim the moving expenses on your final return…people rarely go for this tax planning strategy.
If you are self-employed, you have to work full-time for 78 weeks out of the first 104 weeks after moving. You might wonder how you are supposed to take a deduction for something that takes longer than a year to really know if you qualify. The answer is that you claim the deduction in the tax year or tax years the moving expenses are incurred if you have reason to believe you will meet the requirements. If you are wrong, and you claimed expenses you should not have, you are supposed to either amend the prior return(s) or add it as additional income to your next tax return. If you did not claim expenses and later realized you qualified, then you have to amend.
The other test is the minimum 50-mile distance test. People often think the distance test is based on the distance from their old home to their new home, but it is actually based on the difference between the distance from your old work place to your old home and your old work place to your new home. So if your old commute was 10 miles one-way to work, then the distance from your new home to your old work place needs to be at least 60 miles. This could create some interesting situations. Let’s assume you work a block from your house. Then you receive a high-paying job offer in another town 51 miles away. Your family is rooted in your existing community so you really do not want to leave the area. With the increased pay you decide to buy the house for sale which is next door to your old house. In this case you would meet the distance test, even though you will have only moved next door, and you can deduct any qualified expenses.
So what expenses qualify? In a thimble, the answer would be packing costs, transit of household goods and family members, as well as lodging costs. In other words, all the packing boxes, tape, markers, bubble wrap, movers, truck rentals and related fuel, airline costs, parking and tolls, pet transportation costs, hotel bills, etc. If you drive your cars to transport them, or if you use them for trips back and forth to haul goods, you can deduct 23.5 cents per mile or deduct gas and oil receipts. You can also deduct the cost of storing your goods between houses for up to 30 days. In addition, you can deduct the cost of disconnecting or reconnecting your utilities. If you are moving overseas, you can deduct the costs of storage of your household items in the U.S. each year until you return. After the year of move, these expenses would not go on a 3903, but directly on your 1040 or 1040NR.
There are number of costs you are specifically NOT allowed to deduct as well. Some of these include meals during the move, extra driving or lodging due to sightseeing during the move, pre-move house hunting expenses, fees paid for breaking leases, or security deposits given up on your old home, among others.
If you are in the military, and you receive PCS (Permanent Change of Station) orders, you are automatically qualified, and neither the time nor distance tests apply. You can also deduct the costs of your move within one year of ending your active duty. There are other special rules for military moves as well.
Regardless of who you are, if you get reimbursed by your employer and the reimbursements are not treated as taxable income to you (included in box 1 of your W-2 as income), then you can only deduct the expenses in excess of the reimbursement. Normally, employers report moving expense reimbursements in box 12 with a code ‘P,’ and they are not treated as income in box 1.
Once you figure out your deductible expenses and reimbursements, the Form 3903 is a short five-line form. It feeds into the adjustments to income section on the face of your 1040. This is positive since it is available to all taxpayers, and not just those who itemize deductions.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Back To Basics Part XI – Form 2106 Employee Business Expenses
Filed under: Back to Basics | Tags: 2%, 2106, 2106-EZ, actual expenses, cell phone, clothing, DMV fees, Gas, insurance, Lease payments, Logo, logoed, miscellaneous itemized deductions, not subject to two percent, overnight travel, repairs, standard mileage deduction, two percent limit, uniform, union dues
Leave a comment Originally published in the Cedar Street Times
March 6, 2015
Looking back over the past four months in our Back To Basics series, we have covered the 1040, Schedule A – Itemized Deductions, Schedule B – Interest and Ordinary Dividends, Schedule C – Profit or Loss from Business, Schedule D – Capital Gains and Losses, Schedule E – Supplemental Income and Loss (i.e. – rental properties), and Schedule F – Profit or Loss from Farming. If you would like to catch up on our Back to Basics series on personal tax returns, prior articles are republished on my website at www.tlongcpa.com/blog . We are now going to shift our attention to a few common supporting forms in your tax returns.
Form 2106 – Employee Business Expenses is our topic today. Unreimbursed employee business expenses documented on this form feed into the section near the bottom of Schedule A called Job Expenses and Certain Miscellaneous Deductions. Any expenses you incur that are necessary and ordinary to your profession for which you are not reimbursed by your employer are potentially tax deductible. Note that these expenses do not have to be required by your employer. They can be common and expected expenses in your profession, or they could simply be items that are helpful and appropriate. Clearly there is a lot of judgement in this standard, but it is not a blank check.
Common expenses include the use of your vehicle for work purposes (other than to and from your home), 50 percent of meals and entertainment expenses (often in sales related positions), union dues, educational conferences, trade magazines, books, classes, etc. in your job field. Overnight travel expenditures such as lodging, meals (50 percent), airfare, and car rentals could be deductible. A portion of your cell phone or internet service fees could be deductible. If you have a home office in lieu of a regular office and it is for the convenience of the employer (not for your convenience), then a percentage of the expenses of maintaining your household could be deductible. (This is actually documented on a separate Form 8829.)
There are also areas of abuse that have led to rules that prohibit specific things that might otherwise be deductible. One of these areas is clothing. You might think that your business attire should be deductible, unfortunately it is not if it can be worn in public and not be clearly identifiable as a uniform. Your employer must also require you to wear it. For instance, a nurse or police officer clearly has a deductible uniform, but business people, even if they have to “look nice” for clients and wear suits, for instance, cannot deduct the cost of their clothing. I unfortunately, cannot deduct my bowties, even though it is a bit of a trademark look for me!
If you have logoed clothing with your business name, however, you would likely not have a problem if your employer requires you to wear it. A number of years ago I gave this speech to a client that was a business owner; the next year he came into my office, turned around, and sure enough, he had his business name logoed on the seat of his pants! If you do have a uniform or logoed clothing, you can also deduct the cost of laundering these items.
Logically, to the extent you are reimbursed for your expenses, you cannot deduct them. If, however, your employer includes your reimbursements in your W-2 box 1 taxable wages, you would need to claim the expenses. Also, if your employer has an accountable plan where they will reimburse you for expenses and you simply fail to submit for reimbursement, you are out of luck, and cannot deduct the expense. If the employer will not reimburse you, but you still deem the expense as helpful and appropriate, you can claim the expense.
Calculating deductible vehicle expenses can get quite complicated. The 2106 is a two page form and the entire second page is devoted to figuring out the vehicle expenses. In addition, there are other forms for the depreciation. The simplest method is to use the standard mileage rate (currently 56 cents a mile) and tracking your business miles. You can only use the standard mileage rate if you started using that method in the first year you placed the vehicle into business use. For expensive vehicles or low mileage use, this generally does not pay off. The actual expense method involves tracking all the receipts for gas, repairs, insurance, DMV fees, lease or finance payments, etc. as well as calculating and tracking depreciation expense on the vehicle. But if you have an inexpensive vehicles that you will drive a lot for a long time, you would likely be better off with the standard mileage method.
Form 2106 is the full version of the form, which allows you to not only document hard costs, but also handle vehicle expenses either through standard mileage or actual expense and depreciation. It is also used when you receive partial reimbursements from an employer. The 2106-EZ is a one page form that can be used if you do not have employer reimbursements to report and you do not use the actual expense method for calculating vehicle expenses. If you do not have vehicle expenses at all or reimbursements, you can report the hard costs directly on the schedule A, and you do not need a 2106 or 2106-EZ.
As previously mentioned, these expenses flow into the Schedule A as Miscellaneous Itemized Deductions Subject to 2% along with a few other things such as tax preparation fees and investment expenses. This means they are subject to a two percent of adjusted gross income (AGI) threshold. For example, if your AGI is $100,000, the first $2,000 of these expenses do not even count as an itemized deduction. In addition, you have to have enough itemized deductions to get over the standard deduction (2014 – $6,200 for Single and $12,400 for Married Filing Joint) before they will reduce your taxable income.
Generally, a better strategy is to get your employer to pay for these expenses, even if it means you take a lower salary as a trade-off. You are better off since you will not be subject to a two percent floor!
As with everything there are exceptions. People in the military reserves, for instance, are not subject to the two percent floor. Detailed IRS publications exist on all the rules if you are looking for some more bedtime reading!
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
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