Archive for the ‘tools’ Tag

Back to Basics Part XVI – Form 3903 – Moving Expenses

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.

Advertisements

Property Taxes on Equipment, Furniture, Tools, Etc. Due April 1

Originally published in the Cedar Street Times

March 7, 2014

Many people starting up a small business for the first time are surprised to learn that there are business personal property taxes due each year on the value of everything from the chair they sit in, to their computer, to the pads of paper in the supply closet.  Most people are familiar with property taxes assessed on their home each year, but a business is also taxed on all of its personal property.  When I say personal property, I mean anything that is tangible, but is not real property (real estate).  Intangible assets like copyrights, patents, goodwill, or even software are generally not subject to tax.

This business property tax is established in the California Constitution and the Revenue and Taxation Code.  It falls under the jurisdiction of the California Board of Equalization (the same group that handles sales tax), but it is administered by and filed with the assessor’s office of each county.  For most businesses, the form to file is BOE-571-L (BOE-571-A for agricultural businesses), and it is due on April 1st of each year.  Even though the form is due on April 1st, there is a grace period, and you technically have until May 7th to postmark the form so it will not be delinquent.  (This is much appreciated by CPAs that are working to get income tax returns completed by April 15!)  It is also important to note that the reporting covers your property that existed as of January 1st, and not as of the date you fill out the form.

Maybe you have been in a business for a few years, or maybe 20 years in unusual cases and have never seen a request for this form.  Are you in trouble?  There is an interesting rule that states if the total cost of your business personal property is under $100,000, you do not have to voluntarily start filing the form.  That would cover a lot of small businesses.  However, if you receive a request from the assessor’s office to file the form, you must file every year going forward.  As information sharing has become more mainstream among various government agencies, it is fairly common to get a request in the first year or two you operate, even as a tiny sole proprietor.

The BOE-571-L asks you to break down your property into various categories and by year of purchase.   As the property gets older, it is assessed less each year.  (Tip: retain a copy of your submitted form for reference when filing for the next year.)  Each form is processed by hand.  The assessors appreciate having attached lists that identify more specifically the property you list in the various categories and years.  As you will see on the form, it is not always clear which category to put things in.  For instance, the word equipment is used in four different categories, and you might not be sure where it should be included.  Categories are assessed and depreciated at different rates, so the assessor has a better chance of assessing you the correct tax if you provide more information.  If you have questions, you can call the Monterey County Assessor’s office at 831-755-5035 and ask for the business property tax department.  They are generally available to answer any questions you may have.

It is probably fairly obvious that computers, printers, copiers, furniture, equipment, machinery, and tools are assessed.  In addition, the supplies you have on hand for your business are assessed.  If you do not have a good idea of this value, one approach, or instance, may be to take your office supplies account in your accounting records and divide by 12 if you think you keep about a month of supplies on hand.

Leased property such as a copy machine, is an area that people sometimes overlook.  Your lease agreement will indicate whether you, or the company you lease from is responsible for the property taxes.  If you are responsible, you need to report it on your BOE-571-L.  Licensed vehicles through the Department of Motor Vehicles (DMV) do not need to be reported here whether owned or leased, as they are being taxed through the DMV.

Structural improvements, fixtures, land improvements, construction in progress, and land development are required on the form as well.  Generally, however, structural improvements, land improvements, and land development information is not assessed by the business property tax division and is passed along to the real property division for them to decide whether or not to assess it, or wait for the next time the property as a whole is assessed. Construction in progress would be assessed by the business property tax department: i.e. – you have spent $200,000 in construction on a building that is not complete at the end of the year.  Once the building was completed, the business property tax department would stop assessing it, and the real property department would start assessing it.

Fixtures such as counters, sinks, lights, bolted down equipment, etc. would generally be assessed by the business property tax department.  If you are a tenant and pay for any leasehold improvements, you should report and will be assessed on those as well.  Most leases are written that the property becomes the landlord’s after the tenant moves out of the space.

One final issue that often comes up in an audit is whether or not the business has property that was purchased and immediately expensed on its books and tax returns, and therefore do not show up on depreciation schedules, which is often the main source for reportable property.  In the code, there is no immateriality exclusion for something as small as a stapler, but in practice the auditor is not going to assess you on those items.  You should look for more significant items, however, such as the $400 in books you bought for your business library.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

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.

Advertisements