Three Tax Tips That Could Save You Thousands in 2014

3 Tax Tips That Could Save You Thousands in 2014
By Nick Hodges, CPA/PFS, MBA, CFP

You’re considering an international lifestyle. You have a shortlist of overseas havens and you’ve set the date next year when you’re going to make the move. Along with your other research, thorough tax planning can help you save money and avoid hassle. Here are the three things I always talk through with prospective expats...

1. What you need to disclose:

There are as many as six additional federal tax disclosure forms when you move abroad. While these forms usually don’t change your U.S. income tax amount, each form carries a minimum $10,000 per year penalty if not correctly filed. If it takes a few years for you to find out which forms you should have been filing, these penalties can quickly add up.

So better to know before you go. If you are involved in any of the activities I mention in the current issue of International Living magazine while living or working abroad, you will likely have additional disclosure reporting requirements and should consult a tax professional skilled in international tax.

2. Keep important documents safe and accessible:

Most of us keep our important documents in a safe deposit box or filing cabinet. Things like birth certificates, insurance policies, wills, deeds, tax returns and health records. But what do you do when you need those documents while abroad?

One solution is to scan and save your files to a USB or thumb-drive. And that’s certainly a great idea. But to avoid the hassle that goes with losing or damaging that device you can look to an online vault.

These days there are several outfits offering secure, online storage for your important documents and data, which you can then access from anywhere in the world. Simply scan and upload your documents. This also means that your tax advisor or attorney can access these as well.

3. Leave from the "right" state: You could save a bundle on state income tax and avoid future harassment from state authorities by making your overseas move from a "no income tax" state. But you have to establish residence there before you leave the U.S.

When you move abroad from an income tax state, that state assumes that you are only temporarily away and you are still a resident of the state for tax purposes.

But there are nine "no income tax" states you can consider. Move to one of these before you head overseas and you can save significantly.

As part of the proof that you have permanently left a state, you must do two things...

Editor’s note: In the current issue of International Living magazine, Nick reveals much more about this important subject, including the two things you must do in order to benefit from a "no income tax" state...and gives you his pick of the best "document vaults" available on the market.

You get instant access to that article now when you subscribe...and if you do it before midnight tonight, we’ll give you the Escape Plan that could save you thousands in taxes...help you to grow your nest egg...and safeguard your privacy. Find out more here.

Tax Write Offs for Moving

Helpful Tax Tips if You’re Moving this Summer

If you make a work-related move this summer, you may be able to deduct the costs of the move. This may apply if you move to start a new job or to work at the same job in a new job location. The IRS offers the following tips on moving expenses you may be able to deduct on your tax return.
In order to deduct moving expenses, you must meet these three requirements:

 

1. Your move closely relates to the start of work. Generally, you can consider moving expenses within one year of the date you first report to work at a new job location. Additional rules apply to this requirement.

 

2. You meet the distance test. Your new main job location must be at least 50 miles farther from your former home than your previous main job location was. For example, if your old main job location was three miles from your former home, your new main job location must be at least 53 miles from that former home.

 

3. You meet the time test. After you move, you must work full time at your new job location for at least 39 weeks during the first year. Self-employed individuals must meet this test and also work full time for a total of at least 78 weeks during the first 24 months upon arriving in the general area of their new job location. If your income tax return is due before you have satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test.

See Publication 521, Moving Expenses, for more information about these rules. If you can claim this deduction, here are a few more tips from the IRS:

• Travel. You can deduct transportation and lodging expenses for yourself and household members while moving from your former home to your new home. You cannot deduct the cost of meals during the travel.

• Household goods. You can deduct the cost of packing, crating and transporting your household goods and personal property. You may be able to include the cost of storing and insuring these items while in transit.

• Utilities. You can deduct the costs of connecting or disconnecting utilities.

• Nondeductible expenses. You cannot deduct as moving expenses any part of the purchase price of your new home, the costs of buying or selling a home, or the cost of entering into or breaking a lease. See Publication 521 for a complete list.

• Reimbursed expenses. If your employer reimburses you for the costs of a move for which you took a deduction, you may have to include the reimbursement as income on your tax return.

• Update your address. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. File Form 8822, Change of Address, to notify the IRS.

• Tax form to file. To figure the amount of your deduction for moving expenses, use Form 3903, Moving Expenses.

Moving? Tax Write Offs, Under Certain Conditions

You may qualify to deduct your moving expenses if certain conditions are meet.  The list below will give you insight into weather your moving expenses are tax deductible.  Basically, only moves which are required by your work, qualify for tax write offs.

This list was provided by the IRS, and leaves little room for negotiations.

1. Expenses must be close to the time you start work Generally, you can consider moving expenses that you incurred within one year of the date you first report to work at a new job location.

2. Distance Test Your move meets the distance test if your new main job location is at least 50 miles farther from your former home than your previous main job location was from your former home. For example, if your old main job location was three miles from your former home, your new main job location must be at least 53 miles from that former home.

3. Time Test Upon arriving in the general area of your new job location, you must work full time for at least 39 weeks during the first year at your new job location. Self-employed individuals must meet this test, and they must also work full time for a total of at least 78 weeks during the first 24 months upon arriving in the general area of their new job location. If your income tax return is due before you have satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test. There are some special rules and exceptions to these general rules, so see Publication 521, Moving Expenses for more information.

4. Travel You can deduct lodging expenses (but not meals) for yourself and household members while moving from your former home to your new home. You can also deduct transportation expenses, including airfare, vehicle mileage, parking fees and tolls you pay, but you can only deduct one trip per person.

5. Household goods You can deduct the cost of packing, crating and transporting your household goods and personal property, including the cost of shipping household pets. You may be able to include the cost of storing and insuring these items while in transit.

6. Utilities You can deduct the costs of connecting or disconnecting utilities.

7. Nondeductible expenses You cannot deduct as moving expenses: any part of the purchase price of your new home, car tags, a drivers license renewal, costs of buying or selling a home, expenses of entering into or breaking a lease, or security deposits and storage charges, except those incurred in transit and for foreign moves.

8. Form You can deduct only those expenses that are reasonable for the circumstances of your move. To figure the amount of your deduction for moving expenses, use Form 3903, Moving Expenses.

9. Reimbursed expenses If your employer reimburses you for the costs of a move for which you took a deduction, the reimbursement may have to be included as income on your tax return.

10. Update your address When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. Use Form 8822, Change of Address, to notify the IRS.