As a trusted advisor and technology-savvy person, a tax professional often maintains clients who move out of state. Advising and handling the “move transaction” demonstrates your skills during a very real transition for your client.
Moving out of state invokes two important tax considerations: keeping up with the actual moving expenses and advising your client about the state tax consequences. There are a number of variables that affect both of these tax considerations, including the following:
- Seven states do not have personal income tax, so once a client moves, he or she may not have to file a personal income tax return.
- Most states do not tax capital transactions differently than ordinary income.
- Long-range tax planning should include moving to a lower tax state before a large capital gain transaction.
- Actual moving expenses are deducted using Form 3903, Moving Expenses.
Here is some additional explanation on helping your clients manage their move:
When moving is necessary for a new job, the same job or your first job, moving expenses are a 1040 deduction taken on page 1 above the line. To qualify, the IRS has distance- and work-related requirements. The first challenge is the 50-mile test. The distance between your client’s new primary job and former home must be at least 50 miles greater than the prior commute. Second, your client must be employed full time in the general area of the new job location for at least 39 weeks during the 12 months after the move. Exceptions to the 39-week test are two: if a client is transferred again or laid off.
If your client is self-employed, he or she must work full time in the new location twice as long, at least 78 weeks during the 24 months after the move. If a client is re-entering the full-time workforce, he or she qualifies when moving without a job, as long as he or she works 39 weeks out of the next 12 months. For married couples filing jointly, only one spouse needs to qualify.
What is Deductible?
The cost of packing, shipping and insuring possessions, storage for up to 30 days, and traveling to the new home, including lodging and the cost of disconnecting utilities and reconnecting them at the new home, are all deductible. One day of lodging in the area of the old residence, and one day lodging at the new area, are deductible if the old and new residence are not available for occupation. If a client is driving to the new residence, a standard allowance of 19 cents per mile for a 2016 move, or 23 cents per mile for 2015, is allotted. Otherwise, the client may deduct actual expenses for gasoline, oil, parking fees and tolls. Sadly, the list of what’s not allowed is much longer and includes expenses incurred when buying or selling a home, acquiring or breaking a lease, apartment security deposits, losses from selling or giving up club memberships, driver’s license, and car registration fees.
If a client’s employer pays for moving costs, the costs can either be recorded as a tax-free reimbursement or added to the client’s salary. If added to a salary, Form 3903 is needed to get the deduction. If the employer pays for non-deductible expenses, such as meals, real estate costs and temporary housing, the client will pay income tax on the excess. If client gets the check in December and moves in January, the client can deduct the move in the year he or she receive the reimbursement; if this is the case, the client may take an extension or amendment.
Whether attending college, getting married, having children, getting divorced, retiring or moving, any life transition is the time when your clients need their trusted tax professional the most. Unfortunately, some may think of you after the transition. This is when annual face-to-face meetings really benefit the client, especially if you can keep the meetings within a manageable timeframe.
Editor’s note: This is the fourth article in a series of articles about life changes and tax. Be sure to read the other articles in the series!