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How To Deduct Moving Expeenses for the First
Job
by
Joseph R. Oliver
New accountants may qualify for the moving expense deduction, whether
entering their first jobs or re-entering the workforce after additional
education. They need not itemize since the deduction is taken above
adjusted gross income. Tax savings are often more than expected
because of the marginal tax brackets in which young professionals
find themselves.
The Distance Test
To qualify, a graduate must first meet the 50-mile
test. The distance from his or her former home to the new principal
place of work must be at least 50 miles farther than the mileage
between the former home and old job location. The requirement is
simplified for those taking their first jobs or re-entering the
workforce after an educational absence. The new principal job location
must be at least 50 miles from the former home. The distance is
measured by the shortest of the more commonly traveled routes between
the job location and home.
Example. Gladys is completing her bachelor's degree
in accounting in Bowling Green, Ohio. She accepts a job with Major
Electrical Industries, 25 miles south of her residence. Gladys moves
to an apartment 30 miles north of Bowling Green to be closer to
family members. Although she now lives 55 miles from her job, Gladys
cannot deduct her moving expenses. The distance from her former
home to her new job was only 25 miles.
The principal place of work generally is where most of an employee's
time is spent. If an employee (perhaps an auditor who travels a
great deal) spends no substantial portion of the working time in
a single location, the principal place of work typically is where
business activities are centered. This is where the employee's work
is based or where the employee reports to work.
The Time Test
A graduate also must meet a time test. He or she must work full-time
at least 39 weeks in the new job's area during the first 12 months
after the move. For a sole proprietor or a partner of a partnership
(a self-employed person), the requirement is 39 weeks of the first
12 months and 78 weeks of the first 24 months. An employee or self-employed
person is "working" full-time during temporary absences
for illness or for causes beyond the person's control, such as layoffs,
strikes, or natural disasters. For an employee, a leave or vacation
allowed in the work agreement counts toward the 39 weeks.
The graduate must work in the new area for that period
of time but not necessarily at the first job or, if self-employed,
in the same trade or business. The time requirement is waived if
the person dies, becomes disabled, or is voluntarily separated from
service other than for willful misconduct.
An employee who leaves a job in favor of self-employment
before meeting the 39-week test must meet the self-employed time
test but may use weeks spent as a full-time employee to do so.
Example. Alice moves to New Jersey for a job. After
30 weeks, Alice quits her job and opens her own consulting firm.
Since she failed to work as an employee for 39 weeks of the first
12 months after her move, Alice must meet the time test for a self-employed
person. Her 30 weeks as an employee count toward the 39- and 78-week
requirements.
- A taxpayer who gives up self-employment and
takes a job must meet the time test by either:
working full-time as an employee for 39 weeks of the first 12
months after the move; or
- completing the time requirement for a self-employed
person, counting both self-employment and work as an employee
toward the 39- and 78-week thresholds.
If a married couple (that files jointly) moves, only one spouse
must meet the applicable time test, but that spouse must meet the
requirement alone. Any weeks that the other spouse works do not
count. If the spouse who satisfies the test is self-employed, he
or she must meet the longer requirement.
Deductible Expenses
A graduate may deduct costs of moving household effects, including
payment to a moving company for packing, crating, and transporting
household goods, or to a truck and trailer rental company. Costs
also may include boxes, tape, and hand truck rentals, as well as
in-transit storage and insurance for up to 30 consecutive days after
items are taken from the former home. Any deduction for moving effects
from parents' or relatives' homes is limited to the amount it would
cost to move those items from the graduate's former residence.
Traveling costs, including air fare or other transportation and
lodging (but not meals), are also deductible. A graduate who uses
his or her own auto may deduct the actual costs of gas and oil or
a flat ten cents per mile for the trip. Tolls and parking are deductible
either way. General repairs, depreciation, insurance, and maintenance
such as oil changes and spark plugs are not deductible. The IRS
may question (and disallow) more than one night's lodging in the
old area and one in the new area.
Although moving is often disorganized and hectic, a graduate should
carefully document expenses, keeping all rental, gas, lodging, and
other receipts, and recording "beginning and ending" gas
mileage. Credit card receipts are helpful for verifying amounts
and dates.
Handling Reimbursement
An employer might reimburse an employee's moving costs whether or
not the employee qualifies for the deduction. If he or she does
not qualify, reimbursement is generally taxed.
If an employee reports to the employer only those expenses eligible
for deduction and the employer reimburses them, neither the expenses
nor the reimbursement generally need to be reported on the employee's
return. Reimbursement for non-deductible expenses, such as apartment
or house hunting trips, is taxable. An employee who deducts expenses
in one year is taxed on all reimbursement received in a later year.
Example. Shawn fully accounts to his employer and
is reimbursed for a move to Phoenix that qualifies for the moving
expense deduction. Reimbursement covers $550 for moving household
goods, $275 for actual transportation and lodging costs, and $215
for a pre-move trip to locate an apartment. Shawn reports neither
the deduction nor the reimbursement for moving household goods,
transportation, and lodging. The $215 for the apartment hunting
trip is taxable.
Reporting The Deduction
A graduate generally deducts non-reimbursed moving
expenses in the year paid or incurred, even if the time test is
not met until the next tax year. If he or she later fails the time
test, the graduate adds the deduction back to income in that year
or files and amended tax return for the year of the move.
Example. Myrtle graduates in December of 2000 and,
by year-end, moves 500 miles to New England to take her first job.
She properly deducts $800 of moving expenses on her 2000 Form 1040.
Myrtle's employer decides to reimburse $630 of these expenses in
February 2001. In March of 2001, she tires of the new area, quits
her job, and movers to Miami. Myrtle's 2001 gross income must include
the $800 of moving expenses for which she is now ineligible and
the $630 reimbursement from her employer. Alternatively, she might
amend her 2000 return to omit the moving expense deduction. The
reimbursement remains in the 2000 return.
International And Military Moves
Special rules that are beyond the scope of this article
may apply to an international or military move. A brief summary
of certain provisions follows:
- * For a move to a job outside the U.S. or its
possessions, a U.S. citizen or resident alien might deduct non-reimbursed
costs of storing household goods for a period much longer than
30 days, as well as the costs of moving items to and from storage.
* Employer reimbursement for an international move might be excludable
from income, along with certain other foreign earnings. The exclusion
could eliminate part or all of a graduate's moving expense deduction.
* At permanent retirement, a worker who moves from a foreign job
and residence to the U.S. or a U.S. possession might deduct moving
costs without meeting the time test. If the employee dies before
the move, a spouse and other dependent residents of the household
may be entitled to the same exception if they begin their move
within six months after the worker's death.
* A graduate who moves to his or her first post of active military
duty generally need not meet the distance or time test to deduct
non-reimbursed moving expenses. Subsequent moves from one permanent
post of duty to another may fall under the same exception.
Predictions and Recommendations
This section presents several predictions and recommendations, learned
from the Florida experience, to help students plan for implementation
of the 150-hour law in their states between now and the year 2001.
It focuses on the potential consequences to students of starting
full-time positions in public accounting with a four- or five-year
degree.
Conclusion
Most graduating students are not yet eligible for
the tax breaks associated with homes, businesses, or investments.
The moving expense deduction (on Form 3903) can provide helpful
tax savings, however, and no graduate should overlook it.
Joseph R. Oliver is a professor of accounting at Southwest Texas
State University in San Marcos, Texas.
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