Archive for the ‘moving expenses’ Tag
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 I – Overview of 1040
Filed under: Back to Basics | Tags: 1040, above the line, adjusted gross income, adjustments to income, Alternative Minimum Tax, AMT, basics, below the line, charitable contributions, childcare credit, credits, direct deposit, educator expenses, energy efficient upgrades, exemptions, filing status, first-time home buyer credit, health savings account contributions, Household employees, interest, itemized deductions, medical expenses, miscellaneous itemized deductions, moving expenses, other taxes, paid preparer, real estate taxes, retirement plan contributions, self-employment taxes, student loan interest, tax return, taxes, tuition and fees, understanding
Leave a comment Originally published in the Cedar Street Times
October 17, 2014
On Wednesday October 15, the 2013 personal tax filing season came to a close. Or at least it did for most timely filers. People who requested the six-month extension finally had to lay down their cards, or face increased penalties, and being branded delinquent by the taxing authorities. But I am sure you had your returns done long ago!
It is hard to believe that 2014 is rapidly drawing to a close, and soon we will start filing taxes all over again. This coming year, I would like to challenge you to spend some time looking at your tax returns and learning something new. I am a firm believer that everyone should have at least a basic understanding of the flow of a tax return. This document is a linchpin in your financial life. Let’s spend a few minutes talking about the big picture. You may wish to do this with a copy of a 1040 close at hand.
Tax returns can be hundreds of pages long with many supporting forms and schedules, but it all boils down to a two page summary whether you are John Doe or Warren Buffett…this is your Form 1040. Essentially, the first page lists your income, adjusted by a few preferential items leaving you with your all important “adjusted gross income.” “Below the line,” as it is known, is the second page, and lists your deductions and credits, calculates your tax, and determines what you owe or will get refunded.
Looking at page one in more detail, the top section captures your name, mailing address, and Social Security number. There is also a somewhat passe little box to designate three dollars of the tax you are already paying to the Presidential Election Campaign fund. If you want to learn more about this, I wrote an entire article on its history on April 18th. You can find it at www.tlongcpa.com/blog.
The first real section is where you designate your tax return “filing status” – single, married, head of household, etc. This is very important because it determines how much your standard deduction is and how quickly you will climb the tax brackets as your income increases. Your status is determined by rules, not choice. That said, married people do have the choice of the generally unfavorable Married Filing Separate status.
The next section deals with “exemptions.” This is where you list the dependents in your household – generally your children up through college (even if away at college). A parent or someone not even related can qualify, but they have to meet strict limiting rules. You get an exemption from your taxable income of $3,950 (2014 amount) for each of your dependents. Children under 17 may also qualify you for child tax credits which would go on page two.
The income section falls next. Wages from your job, interest, dividends, business income, rental income, sales of stock, money received from retirement accounts or plans, pensions, social security, etc.
After getting your total income figure, you then are allowed certain favorable “above the line” deductions for things like educator expenses, moving expenses, retirement plan contributions, health savings account contributions, student loan interest, tuition and fees, etc. After subtracting these adjustments, you arrive at your AGI (adjusted gross income). AGI is a key figure and is used in a lot of calculations which could affect your taxes in many areas. Above the line deductions are therefore preferable for that reason, but also because they will have a direct impact on taxable income. Below the line deductions such as itemized deductions are less certain and do not impact your AGI.
The taxes and credits section is at the top of the second page. This is where you get to subtract all your itemized deductions listed on Schedule A- things like medical expenses, taxes paid, interest, charitable contributions, and miscellaneous other deductions (like tax preparation fees!). If you don’t have many itemized deductions you get the standard deduction instead (for example – $12,200 for married status) as determined by your filing status from the first page.
Next, the number of exemptions you claimed on the first page is multiplied by $3,950 (2014) and that is subtracted out to leave you with your taxable income. Your tax is then calculated using tax tables and other rules.
With income generally in the $100,000 to $200,000 range ore more, you may also hit alternative minimum tax (AMT). In simple terms, AMT is a parallel tax system that has a different set of rules and allows less deductions. You calculate the AMT system on every return. If the AMT tax calculation yields a larger tax bill than the regular system, you pay the incremental difference as alternative minimum tax. Real estate taxes and miscellaneous itemized deductions subject to two-percent such as unreimbursed employee business expenses are common items that get kicked out in the AMT system.
Next you get to subtract any tax credits you may have. Tax credits are a dollar-for-dollar reduction of tax owed and are therefore more valuable than deductions, which only save you a fraction on the dollar. Depending on your circumstances there are credits for education, childcare, children in general, energy efficient upgrades, etc.
The next section is “Other Taxes.” There are a handful of other taxes people might incur , such as tax on taking money out of retirement plans too early, household employee taxes, repaying a first-time home buyer credit, etc. The most common, however, is self employment taxes. Business owners must pay the employer and employee side of their Social Security and Medicare taxes. After you add these taxes and determine your total tax liability, you then look at the payments section to see was has been paid in or credited to your account, and whether you will end up owing, or getting a refund.
At the bottom of the second page, you can choose things like direct deposit, or applying the payment to the following year. You can also designate a third party such as the tax preparer to be able to discuss the return with the IRS, if the IRS wants to discuss it. At the bottom, a paid preparer also has places to sign and fill out.
In two weeks we will start examining Schedule A – Itemized Deductions.
Prior articles are republished on my website at www.tlongcpa.com/blog.
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.
Travis H. Long, CPA, Inc. Blog 