Once you have determined you have met the Internal Revenue Service’s (IRS) requirements of a work-related move, which expenses may you deduct? The following are typical moving expenses you might incur which are deductible:

• Travel – You can deduct transportation and lodging expenses for yourself and other members of your household while moving from your previous home to your new home. However, you may not deduct the cost of any meals during the move.
• Utilities – You can deduct any costs you incurred for connecting or disconnecting utilities.
• Household Furnishings – You can deduct the cost of packing, crating and transporting your household goods and personal property. Additionally, you may be able to deduct the cost of storing and insuring your households items while in transit.
• Reimbursed Expenses – If your employer reimburses you for any of your moving expenses you may not deduct them on your income tax return. If you already deducted these expenses before you were reimbursed, you will have to claim the reimbursement as income on your next income tax return.
• Costs of purchasing or selling your homes – You cannot deduct as moving expenses any costs associated with purchasing or selling either your previous home or your new home. This includes any costs you incurred in breaking a lease or entering into a lease at your new location.

The preceding costs associated with your work related move are reported on Form 3903, Moving Expenses. This form is then included and filed with your income tax return. All receipts and any additional documentation must be saved as verification of your deductions.

Additionally, remember after moving to update your address with the IRS so you are able to receive any notifications and mail from the IRS.

If you need to make a work related move you may be able to deduct the costs of moving your home location. When you move due to starting a new job or the same job but in a different location, if three specific requirements are met you will be able to deduct your moving expenses. These requirements are:

• You meet the distance test – Your new primary job location must be at least 50 miles farther than your previous home was to your previous job location. For example; if you lived 5 miles from your workplace your new home must be a minimum of 55 miles from your previous home.
• You meet the time test – After you make your move you must work at your new job for at least 39 weeks during the first year. Self-employed individuals must not only meet this test but must also work full time for a total of at least 78 weeks during the first 24 months after arriving at their new location. If you have to file your tax return before this requirement has been met, you may still deduct your moving expenses as long as you expect to meet the time test.
• Your move is close to the time you start your new job – Usually, you may deduct your moving expenses within one year of the date you first start to work at your new job location.

As always when you are deducting items on your tax return, you must keep accurate records for verification should the Internal Revenue Service (IRS) request proof of your deduction figures. Therefore, before you consider any new home location which would be job related consider the previous described IRS requirements and make sure you save all documentation relating to your move. Typically moving is an expensive endeavor, therefore if you might be able to recapture some of your moving expenses by deducting the costs you incurred with the move it would be well worth the extra effort needed to save all your verifying documentation.

 

If your employer provides such benefits as meals and entertainment, do you have to keep track and are they taxable? Unfortunately, there are numerous complicated rules dictating whether these benefits are taxable or not. Some of these rules are:

 

• If your employer periodically provides supper money if you need to work late, it is tax free unless it becomes a frequent occurrence and then it’s taxable.
• If entertainment allowances are used strictly for business purposes, they are not taxable but if used for personal entertainment they do become taxable.
• Company provided parties and picnics are considered tax free if the employer only sponsors them on an occasional basis.
• Executive dining rooms may be considered tax free if the purpose of eating on company grounds is for the convenience of the employer and not the employee. Additionally, if the employee would be able to consider the meal cost a valid business expense the meal provided in the executive dining rooms would be tax free.
• Company cafeterias are considered tax free if they are available to all the different levels of employees, not just upper management, the top executives, owner-employees and the higher paid. Although, any revenue generated must be used to cover operating expenses or it becomes taxable.
• Any meals and lodging if provided on employer’s premises and are for the employer’s benefit rather than the employee’s are tax free. Additionally, these expenses are totally deductible by the employer.
• Club memberships are taxable unless its use is strictly for business purposes but the employer can treat the membership dues expense as compensation to the employee.

 

While these regulations initially appear complex, by evaluating each employer provided meal or entertainment benefit it should be relatively easy to determine if you, as an employee, need to keep records for tax purposes. If the employer determines these benefits are taxable, it is their obligation to provide the documentation of any taxable benefits for you to use in preparing your income tax return. If you determine the benefits are tax free enjoy them! But if you determine they are taxable, keep records, pay the tax but still enjoy the benefits!

A friend asks to rent your vacation lake home for a week and is willing to pay you the going rate – do you have to claim this as income? If your property is “used as your home” even if only during the summer and you rent it for fewer than 15 days per year, you do not need to report the rent as income on your tax return. Renting a vacation home for fewer than 15 days per year is a great way to help offset the usually high lake front property taxes or possibly set some money aside for improvements!

If you do decide to rent your vacation home for longer than 15 days you will need to report your rental income and any deductible rental expenses on a Schedule E form, Supplemental Income and Loss which is then included in your income tax return.

As long as you personally use the property and only occasionally rent to others, special rules apply. One of the special rules states your expense deduction is limited and may not exceed the amount you received as rent. Therefore, you cannot take a loss because you rented your vacation home for more than the 15 day limit. In this scenario, you must divide any expenses on the property between the days you personally use the property and the number of days you rent to others. Even though you report the portion of the expenses you can allocate as a rental on a Schedule E, you still may continue to report any personal deductible expenses as long as you also personally use the property. The expenses which may be reported on your Schedule A, Itemized Deductions are any mortgage interest and property taxes associated with your vacation property.

While this may appear to be an excellent way to earn a little extra money to help offset expenses you also must take into consideration the fact that someone, even if a good friend, will be using your home as their own for a period of time. The extra money might sound like a good idea, but you must weigh all the factors involved including facing the reality if someone else is using your vacation home you cannot!

If you are able to negotiate with a creditor to get your credit card debt written off or you are able to settle for a lessor amount than owed, you may have to pay income taxes on the forgiven amount. The IRS typically considers the forgiven debt to be income consequently you will have to pay income tax on this type of income just as you would any other income.

Why does the IRS consider your forgiven debt to be income? To understand the answer you have to examine how the credit card company treats your forgiven debt. When your creditor determines your debt is uncollectible it will report the amount as lost income thus reducing its tax burden. This lost income will reduce the amount your creditor owes in income tax therefore the IRS will collect the income tax owed on this money from you.

If the principal of the debt forgiven is $600 or more (the amount owed not including any interest or fees), the credit card company must report the amount on a Form 1099-C at the end of the year. The company is required to send this form to you and the IRS, thus ensuring you will report this forgiven debt as income. If you neglect to report this forgiven debt as income, the IRS will send you a notice of the deficiency along with any interest and penalties. Even if you do not receive a Form 1099-C from the credit card company, it is highly advisable for you to report this amount as income on the chance your copy of the 1099-C did not reach you but the IRS received their copy. The fact that the forgiven debt will be taxable income should be taken into consideration when making the decision on whether to negotiate to have your credit card debt forgiven. Unfortunately in many circumstances, this is one piece of information which the taxpayer is unaware of until income tax preparation time!