Are Moving Costs Tax Deductible?

One of the most important aspects to consider during this process is the financial impact, particularly the costs associated with moving. It’s normal to wonder about the expenses and how they affect your budget. A common question that arises during this time is: are moving costs tax deductible? Understanding the financial implications of your move is crucial, and tax deductions can play a big part in budgeting. It’s about being smart with your finances and making informed decisions. A reliable moving company Los Angeles can provide the physical means of relocating your belongings which is making your relocation even easier.

Tax deductible moving expenses in California

The most important form that you need to be introduced to is FTB 3913. This form serves as a guidance on what moving expenses can be deductible. This relates to any relocation that a person undergoes due to change of a work place or due to a military order for Armed Forces on an active duty. To see if your relocation is eligible for relocation, you should know:

• You should pass the distance test for your moving taxes to be deducted
• Some moving-related activities and your personal possessions are not eligible for tax deduction.
• Time test is another criterion that you need to fulfill

Distance test: Is your move eligible for tax deduction?

In California, not all moving expenses automatically qualify for tax deductions. To understand what constitutes a qualified expense, it’s crucial to know the specific criteria set by the California Tax Service Center. A key requirement is the distance between your new workplace and your old residence. Specifically, your new place of employment must be at least 50 miles farther from your former home than your old job location. To illustrate, imagine you previously commuted 10 miles to work from your old residence. For your moving expenses to qualify for the deduction, your new job should be at least 60 miles away from that same residence. This rule ensures that only those relocating for significant job-related reasons benefit from these deductions.

What is not eligible for tax deduction?

Costs associated with hiring packing services in Los Angeles, for example, are qualified expenses if they are directly related to your move. This includes the cost of physically packing your household goods and personal effects. However, not every cost associated with moving is deductible.

• House-hunting trips,
• Temporary living expenses
• Costs involved in selling or buying a home

These expenses do not qualify. It’s important to differentiate between these non-qualifying personal expenses and the qualified moving-related costs.

What should you know about the time test?

Another important condition is the time test. You must begin working at your new job location shortly after moving. Specifically, you should be employed full-time for at least 39 weeks within the first 12 months immediately following your relocation to the new area. For instance, if you move to Los Angeles in January and start a new job in February, you need to remain employed in the area until at least the following November to meet this condition. 

There are some exceptions with the time test. You are not obliged to meet the time test if anything of the following happens:

• You become disabled
• If your company moves you to a new location for their benefit
• If you’re laid off or let go for reasons that aren’t due to misconduct on your part
• For members of the Armed Forces, if you’re relocating due to a permanent change in where you’re stationed
• If you’re retiring or a surviving family member of someone who worked overseas
• If you’re handling the affairs of someone who has died

Not all expenses are covered, though. Only certain types of moving expenses are eligible for deduction. These include the costs of moving household goods and personal effects, which encompasses services like hiring storage units in Los Angeles if you need to temporarily store your belongings during the move.

Understanding tax implications of employer-paid moving expenses in California

When your employer covers moving expenses in California, it’s important to grasp the tax implications of such assistance. These payments have specific reporting and taxation rules that both employers and employees need to be aware of. For instance, if your employer pays for a moving service directly or reimburses you for your moving expenses, this amount is often considered taxable income. This means that if your company pays $5,000 to cover your moving costs, this amount may be added to your annual income, affecting your total taxable income for the year. Employers typically report these payments on your W-2 form as part of your income. It’s important to review your W-2 form carefully to ensure that any employer-provided moving expense reimbursements are correctly reported.

Employer reimbursement and tax deductions

The relationship between employer reimbursement and tax deductions for moving expenses is also noteworthy. When your employer reimburses you for moving expenses, you generally cannot claim these expenses as deductions on your personal tax return. This is because it’s not permissible to claim a tax deduction for an expense that has been reimbursed. For example, if your employer reimburses you for the cost of hiring a moving truck and storage units, you cannot claim these expenses as deductions on your California tax return. It’s essential to keep thorough records of all moving-related expenses and reimbursements to accurately report them after checking whether moving costs are tax deductible.

Are moving costs tax deductible in your scenario?

We have covered the essentials of the question –  are moving costs tax deductible? Remember, while the process might seem daunting at first, with careful planning and record-keeping, you can navigate these waters successfully. Keep all receipts and documentation related to your move, be aware of the specifics of your situation, and consult tax professionals if needed. And while you are dealing with the paperwork related to taxes, use our moving services Los Angeles residents rely upon and move like a pro.

References:

New to California | taxes.ca.gov

2022 Instructions for Form FTB 3913 Moving Expense Deduction | ftb.ca.gov