With all of the tax law changes that came into effect in 2013, Certified Public Accountant, Troy Reichlein, believes most people are going to see their tax bills go up or their refunds shrink when they do their taxes this year. Tax rates in most all brackets have gone up, deductions have been scaled back and even if you meet the deduction requirements they can be phased out depending on your income.
With all of these changes taxpayers must be diligent now more than ever to search for the deductions and credits they qualify for, and there are still some good ones that exist for those who qualify.
If you make a significant move, from say one metropolitan area to another, you may be able to deduct all of your moving costs on your tax return. In order to do so you must meet three requirements:
1.) Your move is closely related to the start of work (generally that means within one year). It is important to note that you do not necessarily need to arrange for work before moving to the new location, as long as you actually go to work in that location.
2.) You meet the distance test (your new main job location is at least 50 miles farther from your former residence than your old main job location was).
3.) You meet the time test. You must have work at the new location full-time for at least 39 weeks during the first 12 months in the general area of your new job location. For self-employed persons you must work at least 39 weeks in the first 12 months and a total of 78 weeks during the first 24 months.
There are quite a few exceptions that can be available to these requirements, so if you did move, and have some costs associated with the move, it can be worth checking into. For example, if you started work in a new location, say Seattle, and moved the family up there after you have been working for over a year, the one year requirement can be excepted if you have a good reason. In your case, perhaps moving the family was delayed because you wanted your child to finish high school. In this case you would still be able to take the deduction.
Another exception could be with the distance test. Perhaps you don't meet the 50 mile test from your new job to your old home, but you can show that the move reduced the time and money you spent on your commute. In this case, the exception would be allowed.
In the case of the time test, the 39 week requirement does not have to be consecutively, it simply must be in a 12 month period. Furthermore, it doesn't have to be for the same employer, it just has to be in the same general commuting area. For self-employed persons, your self-employment work does not have to be in the same trade or business; it just needs to be self-employment work.
There are also exceptions for those who go to work for the very first time, say after graduating college. Your distance test is only that your place of work must be at least 50 miles from your former home to meet this requirement.
For married couples filing a joint return, either one of you can meet the time test of working 39 weeks in a 12 month period. You cannot combine your weeks of work together, but you don't both have to meet the requirement either.
For people in the armed forced, retirees and people who have lived and worked abroad, these deductions apply to you as well, and there are different requirements that have to be met, but they typically are favorable.
So once you meet these requirements, what do you get to deduct? You can deduct the costs associated with:
- Moving your household goods and personal effects (including in-transit storage expenses);
- Traveling (including lodging but not meals) to your new home;
- Auto Mileage: If you drive, you can deduct actual expenses or use the standard mileage rate of 24 cents per mile. You can also deduct parking fees and tolls.
- You can deduct costs associated with connecting or disconnecting utilities;
- You can deduct the costs of shipping your car and household pets;
- The cost associated with moving your goods to and from storage are deductible and the cost of storage for storing your household goods for all or part of the time the new job location remains your main job location;
Things you cannot deduct include:
- The cost of breaking a lease at your old location;
- Pre-move house hunting expenses;
- Return trips to your former location;
- Security deposits given up due to the move;
- Any reimbursements received from your employer have to be subtracted from your expenses deducted.
Moving expenses get deducted on page 1 of your Form 1040 and can result in significant savings on your tax return. If you made a move during the year and are close to meeting the three requirements necessary to take the deduction, you should look into it more by contacting your local CPA or reading IRS Publication 521.
Child Care Credit:
Most people with children are aware of the Child Care Credit, a credit which allows you to deduct the cost of providing child care to your children so that you and your spouse may work. The Child Care Credit provides up to a 20% tax credit for up to $5,000 of qualified expenses, so, you can receive a $1,000 tax credit on your return.
However, what people often overlook is that many employers offer a child care reimbursement account, which works a little differently than the credit because you have up to $5,000 per year withheld from your paycheck that goes into this account that your employer controls, and then you submit your child care receipts for reimbursement. So there is a little more paperwork involved with this method, however, the amounts withheld from your paycheck are tax free, meaning that if you are in the 25% tax bracket, you will be saving 25%, plus social security/Medicare taxes of 7.65% and Oregon tax of 9%, so that equals over 41%. For a little additional paperwork you are saving another $1,000 in taxes.
If you have an employer who doesn't offer this service, they may want to consider doing it because they save too! Amounts you withhold for this are exempt from the employer's payroll tax for social security/Medicare requirements which is 7.65%, or about $380 per employee.
If at the end of the year you do not have enough qualified expenses to meet the amount you had withheld, the difference simply gets counted back into your income.