Summer is a time where many families decide to move, since the kids are out of school and it may be easier to get vacation time from work. Below, we detail the many ways moving can affect your taxes.
Moving Out of State
Texas is one of seven states that does not collect a state income tax. That’s a pretty attractive offer for people considering a move.
First, it’s important to remember that if you spend 183 days or more in your former taxed state, you still owe state income tax for that year. You will have to file a non-resident return. It’s understandable that setting up a new residence is complicated and some details fall through the cracks. However, the increase in technology allows the IRS to analyze suspicious activity even closer. In order to stay out of the crosshairs, consider these three tips.
- Change your documentation as soon as possible. Be sure to get a new driver’s license and license plate within 30 days of making your move. Update your mailing address for all your creditors and change your voter registration.
- Keep proof of residency. Find a way to document when you moved. Keep receipts from the moving company, documents from the sale or lease of your former home or even the receipt from your utility deposit at your new home. If the IRS questions your residency, you’ll be happy to have the back-up.
- Think about the details. There are legitimate reasons to maintain ties with your former state. Your company may have an office there. You may still own property. You may have just moved across the border, so you travel back and forth frequently. Think about how your actions will look if analyzed. Where is the checking account you use most frequently? Do you still sit on the board of an organization in your former state? What about your gym membership or golf club affiliation? None of these circumstances are illegal. In fact, they are completely legitimate in many cases. However, be prepared that your actions could raise a red flag. Keep track of the details.
Moving Locally
Be sure to keep track of your moving expenses if you plan to itemize your deductions for the year. This means to collect receipts of gas, rentals, and hotel accommodations (meals are not deductible). It’s worth mentioning that moving expenses are only deductible if you moved due to a change in your job or business location, or because you started a new job or business. You can deduct your moving expenses if you meet all three of the following requirements:
- Your move is closely related to the start of work: You can consider moving expenses incurred within 1 year from the date you first reported to work at the new location.
- You meet the distance test: Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.
- You meet the time test: You must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of your new job location.
Also, don’t forget to factor in property taxes when searching for your new home. You can find the property’s state and local taxes paid by searching on your community’s tax assessment website. Luckily, deductible real estate taxes are generally any state, local, or foreign taxes on real property levied for the general public welfare. These would be included if you choose to itemize your deductions for that given tax year.
Taxes are commonly the last thing on the mind of someone juggling a move. Most people move because of employment or other opportunities, not to avoid taxes. If you have recently moved to Texas, you are no doubt pleased about the tax money you will save. Contact us today with all your tax and personal finance questions.
