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Prepare Your Transferees for Tax Filing Season

In light of the elimination of the moving expense deduction for transferees, here are some tax filing tips for transferees.

 In the words of a financial company advertisement from some years ago, “You must pay taxes. But there’s no law that says you gotta leave a tip.” So in the spirit of getting it correct after the substantial tax law changes in 2018, here are Worldwide ERC®’s annual tax season filing tips, which should help to avoid “tipping” the tax man.

The moving expense deduction was suspended for 2018 through 2025 in the 2017 Tax Cuts and Jobs Act (TCJA). Therefore, the moving expense will not be deductible on your 2019 federal tax return. However, there are some circumstances in which you may still be entitled to moving expense breaks.

  1. The suspension does not apply to members of the active duty military moving pursuant to a military order incident to a permanent change of duty station.
  2. Some states continue to allow deductions and exclusions for moving expenses that were deductible under the federal tax code prior to 2018.
    • States that allow a deduction: Arkansas, California, Hawaii, Massachusetts, New York, and Pennsylvania
    • States that allow an exclusion: The six states above, plus New Jersey

 Be sure to check your W-2 if you moved to or from one of those states to be sure deductible moving costs paid or reimbursed by your employer were not included in your income.

If you are deducting moving expenses on a state return, or are a member of the active duty armed forces moving pursuant to a military order, here are several items deductible as moving expenses that are sometimes overlooked:

  • Tips to the moving van driver or helpers.
  • Mileage for driving second or third cars to the new location (in addition to the first car). The deduction for 2019 is 20 cents per mile.
  • Lodging expenses in the departure location for one night after the household goods are packed, and one night in the new location on the day of arrival.
  • Moving household goods from a location other than your main home, up to what it would have cost to move them from the main home
  • Storage of household goods for up to 30 days, including the cost of moving the goods into and out of storage. Note that the costs for moving the goods into and out of storage remain deductible even if the goods are in storage more than 30 days.
  • Expenses not reimbursed by your employer, such as extra crating, shipment of unusual items, tips to van line staff, etc.

Other filing season tips:

  • If the seller of your new house agreed to pay part of your mortgage points instead of reducing the sales price, IRS says you can deduct those points, even though the seller paid them.
  • If you ever refinanced your mortgage, don’t forget to deduct the entire remaining balance of points paid on the refinancing in the year you sell your home.
  • If your new job is for a different employer, and you earned a total of more than $132,900 in 2018, you may have had too much deducted as contributions to Social Security. You can take a credit for the excess over $8,240. The amount is entered on Line 11 of Schedule 3, and then on line 18d of your Form 1040 tax return. However, you may still owe the additional 0.9% Medicare tax that went into effect in 2013 if combined wages from both employers exceeded $200,000, or if your wages combined with those of your spouse exceeded $250,000. In such a case, you will need to file Form 8959 to report the additional tax, which applies to amounts in excess of the thresholds above, and include it on line 62 of Schedule 4 of the Form 1040, and line 14 of the Form 1040.
  • If you moved to one of the states with state and local sales taxes but no general income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming) you may benefit from an itemized deduction for state sales taxes. The deduction was reauthorized and made permanent by Congress in 2016. (Note that beginning in tax year 2018 the total deduction for sales tax, property tax, and income tax cannot exceed $10,000.)

Other significant changes made by the 2017 tax reform law:

  • The standard deduction is substantially increased ($24,400 for married couples filing a joint return, and $12,200 for singles, for 2019) but you are no longer allowed a deduction for personal exemptions.
  • The child tax credit is increased to $2,000 per child 17 years old and younger, with an additional $500 credit for other dependents.
  • The mortgage interest deduction is limited to mortgage debt of $750,000, but interest on pre-existing mortgages remains subject to the old limit of $1 million.
  • Interest on $100,000 of home equity debt is no longer deductible, unless the debt was incurred to acquire or substantially improve your home. This rule applies to all home equity debt, whether incurred before or after 2018.
  • Medical expenses that exceed 7.5% of Adjusted Gross Income are deductible by all taxpayers. This provision expired after 2018, but was renewed retroactively through 2020 in late 2019.
  • There is no deduction for miscellaneous itemized expenses. This means, for example, that employees are no longer allowed to deduct expenses for a home office or other costs associated with their jobs.
  • As noted earlier, the deduction for state and local taxes is limited to $10,000 for both singles and married couples filing joint returns.

The 2019 return will be due on Wednesday, 15 April 2020.

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