When discussing relocation, the first obstacle to conquer is often the cost. It doesn’t matter if you’re relocating an employee or if you’re a company that reimburses your company for relocating expenses. Money is always the top concern.
Many other variables can influence this decision, too, like many others.
- Housing (buying/sales)
- Lease cancellation for vacant houses
- Housewares Transportation
- Interim housing needs
- And more
Relocating your business to another country can be very costly. And it is also tax-effective since there are tax incentives to help you relocate your business.
We get asked many questions about relocating people, including the following questions:
- Are costs of relocating deductible?
- Employees may be able to deduct certain expenses for relocating to another job. Can I deduct my relocation costs if I have moved out of state?
- How long does it take me to pay the movers?
Before getting started, it is essential to know how tax laws have changed in the past few years concerning relocating expenses for employees and employers.
You might recall that under the Tax Cuts and Jobs Act of 2017, employees can no longer deduct business expenses, such as relocating costs, except for two exceptions.
Employees could deduct the costs of relocating if they meet specific criteria, as specified by the IRS, and only exclude the fee of reimbursements if their employers paid those expenses.
What this means for employers
If your company pays for all or a portion of an employee’s relocating expenses, the amount you pay is still a deductible expense for your company.
Employers primarily benefit from paying employees’ relocating expenses, but relocating employees will feel a little less comfortable accepting your offer of relocation benefits.
Employers gravitate toward the practice of tax gross-ups to solve this problem.
What this means for employees
Put any amount an employer pays a relocating employee to help cover relocating expenses to the employee’s W2 statement. Therefore, the employee will need to pay taxes on the total amount given in addition to their annual salary.
So relocation expenses are deductible, so it is essential to know if they are deductible. Relocating costs, such as large payments made in one lump sum, are taxable, meaning the employee will have to spend income tax on all they earn.
What is a gross receipt on your taxes?
Tax gross-up software is a powerful tax software that can help you calculate the tax that your employees will pay on their benefits if you or your employees are relocating if you pay them directly or if you reimburse them if they did not pay those taxes.
How it works:
Based on their gross-up policy, employers will help ease the burden of the employee’s tax obligations. It is by providing them with the necessary tax assistance to help them pay this tax. It is as though the employer pays tax assistance to help the employee pay tax on their behalf by directing the tax authorities, where appropriate, to provide the necessary service.
Which relocating expenses are tax deductible?
Determining which relocating expenses are tax deductible can be a complex process, as it depends on various factors, such as the expenses’ character, the relocation’s purpose, and the tax laws of your jurisdiction. Generally, relocating expenses incurred to start a new job or business are tax deductible. It includes transportation and storage of household goods, temporary living expenses, and the cost of relocating your family and personal belongings. However, expenses incurred for personal reasons, such as home-finding trips, are not tax deductible. It is critical to keep accurate records of all relocating expenses, including receipts and documentation, as the Internal Revenue Service (IRS) may request proof of the expenses in case of an audit.
Check out our next article: Managing finances as an American Expat
To maximize the tax benefits of relocating expenses
Keep accurate records: Maintain a detailed description of all your relocating expenses, including receipts, invoices, and other documentation. It will help you to claim the deductions on your tax return accurately.
Understand the rules: Familiarize yourself with the tax laws and regulations regarding relocating expenses in your jurisdiction. It will help you to determine which costs are tax deductible and which are not.
Time your relocation strategically: Timing your relocation can assist you in maximizing the tax benefits of relocating expenses. For example, if you relocate mid-year, you can claim a portion of the costs on your current year’s tax return and the remainder on the following year’s return.
Seek professional help: If you need clarification on your relocation’s tax implications, consider seeking a tax professional. A tax expert can help you understand the rules and regulations and guide you in maximizing the tax benefits of your relocating expenses.
To accurately track and report relocating expenses on your tax return, it is essential to follow best practices such as:
Keep receipts and documentation: Maintain a file of all receipts, invoices, and other documentation related to your relocating expenses. It will serve as proof in case of an audit.
Use a system to track expenses: Consider using a spreadsheet or a budgeting app to keep track of your relocating expenses. It will help you ensure all costs are accurate and avoid missing any deductions.
Understand the tax laws: Familiarize yourself with the tax laws and regulations regarding relocating expenses in your jurisdiction. It will help you to determine which costs are tax deductible and which are not.
Seek professional help: If you need clarification on your relocation’s tax implications, consider seeking a tax professional. A tax expert can help you understand the rules and regulations and guide you in reporting your relocating expenses on your tax return.
Report expenses correctly: When reporting your relocating payments on your tax return, be sure to claim the correct amount and to provide accurate and complete information.
Stay Consciously Aware
It can be tough to relocate, and finding good professionals can be difficult. Relocating can be expensive, but we can help you plan accordingly. We can help you prepare for relocation to an area where your business can increase and prosper. We can help you evaluate tax relief and other incentives that will allow your company to keep most of its revenues while relocating.
Call us today to schedule a free consultation to learn more about our capabilities.