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Tax Planning Tips for Relocating Employees on the Move

January 19, 2023

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Laying the groundwork for a stress-free tax experience starts before you’ve even packed your first moving box. 

Taking on an assignment that requires relocating should be a time of excitement. For many, relocating is a chance to conquer new challenges and grow your professional skills and career opportunities. On the personal side of things, moving to a new state or country is a rare chance of discovery and a new phase of life for you and any loved ones. 

But moving comes with many challenges in the form of finding a new residence and moving your cherished possessions. It also comes with the uncertainty of tax implications. Let’s face it: the anxiety of figuring out how relocating will inevitably impact your taxes would cause many of us to be apprehensive about accepting the new job.

Fear not! If you’re about to move for a new job, or you’re advising your company’s employees on their mobility package, you can guarantee a reasonably stress-free tax experience by following these helpful tax planning tips for relocating employees:

Contact the correct departments

If you’re preparing to relocate, it’s necessary to get in touch with your company’s Payroll, Relocation, and Human Resources departments to confirm that they have all of the correct information on your: 

  • Marital status
  • Number of dependents
  • Updated home and work addresses and telephone numbers

Supplying these departments with updated information concerning your new addresses ensures tax assistance payments are based on the correct state of residence and any forms sent are mailed to the correct address. 

It’s also essential to ensure that state taxes are being withheld for each state involved in your move, based on the timing of your move. Properly withholding taxes assures that your gross-up is accurately calculated.

For any employee moving to a state without a personal income tax (AK, FL, NV, NH, TN, TX, WA, WY), it’s crucial to complete a new W-4 form with the payroll department, so your new state address is used on the first day of work in said state.

Don’t forget to forward your addresses

USPS now allows you to file a temporary or permanent change of address on their website. It’s recommended that you file your request two weeks in advance of your move to allow time for processing.

Related reading: 10 Things Every Employee Should Know Before, During, and After a Move

Tips for state tax returns

Generally, relocating between states means that you’ll usually need to complete a part-year return for both your former and new state. The IRS directory of state government websites will help you locate pertinent information about state-specific filing regulations and requirements.

A special note on stocks: if you’re planning to sell stocks or other investments during the year you move, be sure to time the transaction while your home is in the state with the highest or lowest rate depending on whether you anticipate a loss or gain. 

If you’ve invested in municipal bonds in your old resident state, consider disposing of these bonds in favor of bonds in your new resident state. Interest income you’ve earned on municipal bonds purchased in your home state is not subject to income taxes in your home state.

Giving to charity 

Moving couches and appliances can sometimes be more effort than it’s worth. If you decide to dispose of furniture, clothing items, or appliances, consider donating these items to a qualified charity. Charitable donations allow you to claim a deduction for a contribution of $250 or more in any one day to one qualified donee organization – but only if you have a contemporaneous written acknowledgment of your donation from the organization. 

The written acknowledgment must include a description of any non-cash contributions, and the taxpayer must provide a good-faith estimate on the value of any goods. Written appraisals are required for items whose claimed value exceeds $5,000. 

If you decide to donate an old car or other vehicles, the deductible is limited to the amount that the charity receives when they sell the vehicle. The charity should issue a Form 1098-C after they’ve sold the vehicle to inform the taxpayer of the correct amount to deduct; this form must be attached to your tax return to take the deduction. If you’re curious about the potential value of your vehicle, Kelly Blue Book provides an online appraisal estimation tool.

Don’t overlook these deductions

It would be a shame to miss out on potential state deductions for your household goods shipment and final move costs. These possible deductions include any relocation-related expenses not reimbursed to you or paid on behalf of your employer. These may include: tips to van line staff, shipping a vehicle like a boat or a motorcycle, driving extra cars to your new location, additional crating, etc.

Did you refinance your mortgage on your old house? If so, don’t forget to deduct any remaining balance of discount points you paid when you refinanced. The remaining balance of any points is deducted as mortgage interest on Schedule A because it’s assumed unamortized points are deductible once the old mortgage is paid off.

Related reading: Moving Expenses: What Counts and is it Deductible?

Save your receipts 

Don’t miss out on any additional deductions by tossing those receipts! A tax-deductibility best practice is to save and organize receipts you’ve collected from all relocation expenses and copies of your submitted expense reports. 

Don’t fret if you didn’t itemize

Were you unable to itemize your deductions from a recent relocation? Make sure to notify Payroll and Human Resources, as you may still qualify for tax deductions. A gross-up calculation may assume you can deduct state taxes; this can make a difference, especially if you’re affected by the $10,000 State and Local Tax (SALT) limitation. 

Tax pro-tips from tax professionals 

When relocation tax concerns like completing part-year state returns are involved in the tax filing mix, things can become complicated. Sometimes, taxes are best left to the professionals. Whether you’re seeking solutions for your global mobility program or you’re an assignee on the move, Ineo has you covered with our complete mobility tax services, including relocation tax preparation, tax policy consultation, and global mobility tax education.

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