OFFICE EXPENSES, PROFESSIONAL SERVICES

Moving Expenses Tax Deduction

If you are an entrepreneur who is relocating for business reasons your moving expenses may be deductible regardless of whether you move within your city or to another state. The moving expense deduction can apply if you are moving your office or your personal residence (for business purposes). Like most tax matters the IRS has developed a number of rules guiding the moving expenses deduction, but as an entrepreneur these expenses can add up quickly so keep track of all your reasonable moving costs and follow the tests set by the IRS to determine if you qualify for this deduction.

ENTREPRENEUR

Ramsey Cook, a chef at Fire kitchen in Los Angeles decided to pursue his dreams and start his own restaurant in Denver, Colorado. In December, he rented a Uhaul truck and set out to Denver. For the next few months he worked full time to start his business. Since Ramsey moved to Colorado for business purposes he can deduct his personal moving expenses from December when he files his taxes in April even though he has not yet met the 78 week test.

AUTHOR / SPEAKER

Remy Goldster is a freelance journalist from Detroit who for the past five years had primarily worked from a client site. This year Remy decided to get his own space so he signed a lease at a new office across town and relocated with his family so he could be closer to his new business location. Unfortunately for Remy, the distance between his new business location and his old house is only 42 miles more than the distance between his old business location and old house. Since Remy does not pass the distance test, he would not be eligible to deduct his families moving expenses on his personal return. He could however deduct any expenses associated with moving his freelance operations into a new office space on his Schedule C.

DESIGNER

Katie Houston moved her solo web design business from a local incubator to a dedicated space. During the move she rented a truck, purchased packing supplies and paid a move in fee at her new office. Katie can deduct all of these business moving expenses on line 27 of her Schedule C, regardless of if her new office is across the street or across the country.

REAL ESTATE AGENT

Bruce Hustler is an experienced real estate professional from Greensboro, North Carolina. Last year Bruce purchased three rental properties in South Beach, Florida and moved there solely to start operating a lucrative AirBnB business. If Mr. Hustler operates his new rental business for 78 weeks during the next 2 years (39 of which must be in the first year) he would likely be able to deduct his personal moving expenses associated with the relocation on his personal return.


PROFESSIONAL SERVICES

Kelly, a solo lawyer from Hagerstown, MD moved 68 miles to Washington, DC in May to start her own practice. Kelly incurred $2,000 of personal moving expenses, which she deducted when preparing her tax return the following year. Unfortunately, Kelly was forced to close shop after 72 weeks (39 of which were in the first year). If Kelly takes a full time job with a local law firm and holds it for at least six weeks before she reaches the two year anniversary of her move, her moving expense deduction will still be valid. If on the other hand, Kelly cannot find a job and does not work full time for 78 weeks prior to the two year anniversary of her move she will have to either amend her tax return or classify her prior year moving deduction as income on her following year's return.

ABOUT DEDUCTING BUSINESS MOVING EXPENSES

  • Moving expenses for your business will likely be deductible regardless whether or not you meet the IRS tests for personal moving expenses, since relocating offices is a normal operating expense. The moving expense tests defined by the IRS only apply if you are deducting personal moving expenses incurred in connection with a business move.
  • If you want to deduct personal relocation expenses incurred in connection with a business move, the IRS expects you to meet the following requirements: 1) The distance between your new business location and former residence must be at least 50 miles more than the distance between your old business location and former place of residence, and 2) you must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of the new business location and a total of 78 weeks during the first 24 months you are in the general area of the new business location.
  • If a you are self-employed and cannot meet the 78 week test but previously claimed a deduction for personal moving expenses, you must either amend their prior year tax return or claim the deduction as income in the year you fail the test.
  • Provided the moving tests are met, you direct moving costs can be deducted including actual transportation expenses (or $0.235 per mile), tolls and parking, and other costs associated with transporting personal goods to the new location. Note that meals, pre-moving house hunting expenses, lease termination payments, home buying / selling costs, temporary living expenses, etc, are not deductible moving expenses. Further, a business owner must move within a reasonable time of business activities commencing for moving costs to be deductible.
  • The moving expense rules defined here may not apply to employees and members of the armed forces.

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