Income tax is a percentage of a person’s earnings which are due to both the state and federal governments each year on April 15. The amount of tax that an individual is required to pay is calculated by subtracting any permitted deductions from their income. The Internal Revenue Service (“IRS”) the government agency that collects these taxes.
Federal tax laws are based on the Internal Revenue Code (“IRC”). These laws provide the rules and regulations which govern federal income tax. Federal income tax applies to all individuals, including those who are not United States citizens, as long as they earned income from a source within the U.S. Income taxes are intended to increase the revenue that is considered to be necessary to operate the government, as well as to offer services such as social programs.
Most people pay their income tax by having the amount withdrawn from their paychecks. Employers withhold a portion of their employee’s wages and send the amount to the IRS. In some cases, this amount is not sufficient to cover their federal income tax liability. As such, the taxpayer must send a payment to the IRS by April 15. If they cannot pay the entire amount at once, they should inform the IRS in order to make payment arrangements.
In 1913, Congress passed the 16th Amendment to the U.S. Constitution which gives Congress the power to create and collect income tax. Eventually, the 16th Amendment led to the passing of the IRC. As was previously mentioned, the IRC sets the standards for all tax laws, including federal, state, and local tax regulations.
However, not everyone will be subject to income tax laws. An example of this would be how the federal government does not collect income tax from the unemployed. Additionally, certain states might not subject their residents to state income taxes.
Are Moving Expenses Tax Deductible?
Tax deductions are defined as being reductions of income which is taxed, and are most commonly the result of various expenses. In terms of moving expenses, an individual taxpayer is allowed to deduct from their taxable income any expenses that were paid or incurred in connection with the commencement of work.
These expenses must have been paid by the taxpayer as an employee, or as a self-employed individual at a new principal place of business. Moving expenses are recorded on Form 3903, and are entered on line for the Form 1040.
What this means is that you may be able to deduct some of your moving expenses from your taxes, if:
- You moved because your job or business moved to another location;
- You started a new job that was in a new location; or
- You started a new job or business.
You can deduct your moving expenses if you meet all three of the following requirements:
- Your move closely relates to the start of work;
- You meet the distance test; and
- You meet the time test.
Deductible moving expenses are defined as reasonable expenses that are incurred because of:
- Travel: You can deduct any transportation and lodging expenses that you made during the move from your old location to your new location. However, you cannot deduct any meal expenses;
- Packing and Shipping: You can deduct any expense that you made on packing, as well as shipping expenses made during your move;
- Temporary Living Expense: You can deduct expenses made if you checked into a hotel on the way from your old location to your new location; and/or
- Utilities: You can deduct any fees paid for connecting or disconnecting utilities as a result of your move.
There is no set dollar limitation on how much is deductible; however, the amount must be reasonable. Additionally, as was previously mentioned, these costs must be associated with the commencement of work. Commencement of work may be:
- The beginning of work by the taxpayer for the very first time, or after a long period of unemployment;
- The beginning of work for a new employer, or the start of new business in a new location; or
- The beginning of work for the same employer or business, but in a new geographical location.
In order to be deductible, deductible moving expenses must have been incurred within 1 year of the commencement of work. If your employer does reimburse your expenses, you must claim the money as income on that year’s tax return.
In terms of location, the new home that the taxpayer moves into should be physically closer to the new place of work than the old home. An exception to this is would be if:
- There is a requirement as a condition for the taxpayer’s employer that they live in the new home, even though it is further away than the taxpayer’s old home; and/or
- The taxpayer saves time in commuting to work, even though the new home is further away than the old home.
Are There Any Additional Requirements In Order To Deduct Moving Expenses From My Taxes?
For the move, you must relocate within one year of the time that you first report to work at your new job location. To reiterate, you must also meet the minimum distance and the minimum employment tests in order to deduct moving expenses:
- Minimum Distance Test: The taxpayer’s new principal place of business must be at least 50 miles farther away from the taxpayer’s old home, than the old place of work was;
- Minimum Employment Test: For an employee, they must work at least 39 weeks as a full-time employee in the 12 months following their arrival in the new place of work;
- Other Time Test: For a self-employed individual, they must work a total of 78 weeks as a self-employed individual in the 24 months following their arrival in the new place of work. At least 39 weeks must have been worked in the first 12 months.
For the purposes of the moving expense deduction, a self-employed person is one who performs services as an owner of an entire interest in an unincorporated business. Or, they perform services as a partner in a partnership carrying a business.
Those who do not pay all of their owed taxes may be subject to fees. If there is a legitimate reason as to why a taxpayer did not pay their taxes, they may be able to negotiate for an extension. Alternatively, they could also request a payment plan to pay taxes still owed in monthly installments.
However, if a taxpayer does not have a valid reason as to why they did not pay all of their taxes or is deliberately avoiding paying off their taxes, they could be charged with a felony. This is because engaging in an intentional scheme to avoid paying taxes to the IRS is committing tax evasion. Tax evasion is a felony offense that can result in serious fines, as well as a prison sentence for up to five years or longer.
Additionally, a taxpayer who only pays a portion of the taxes that they owe may be subject to an audit by the IRS. Briefly, an audit is a review of a person’s financial information and various monetary accounts. The IRS uses audits to confirm that a taxpayer is accurately reporting their taxes and complying with federal tax laws.
Do I Need A Lawyer For Help With Tax Deductions?
Determining what moving expenses can be deducted from your taxes can be especially complicated. If you are unsure about your taxes or need representation before the IRS, a tax attorney can help you.
An experienced attorney will help you understand your legal rights and options according to your state’s specific tax laws, and can help you understand which of your expenses may be tax deductible.