Can Digital Nomads Take A Tax Deduction For Moving Expenses?

Monday, May 22, 2017

Federal tax law allows a deduction for moving expenses related to starting a new job or transferring to a new location for your present employer. To take the deduction, you have to meet all three of the following requirements:

  • The move closely relates to the start of work. In general, that means all moving expenses were incurred within one year from starting work in your new location.
  • The move meets the distance test. Your new workplace must be at least 50 miles farther from your old home than the old job location was from your old home.
  • The move meets the time test. An employee must work full-time for at least 39 weeks during the 12 months immediately following arrival in the general area of the new job location. (Although there are a few exceptions to the time test in the event of death, disability, and involuntary separation, among others, as outlined in IRS Publication 521.)

The rules for deducting moving expenses for a self-employed person are a little trickier.

In general, self-employed people can deduct moving expenses if they work full time for at least 39 weeks during the year following the move. Additionally, you must work full-time for a total of 78 weeks during the first two years immediately following your arrival to your new home.

But IRS rules are sometimes slow to adapt to changes in the way we work. They don’t specifically address self-employed people who can work from anywhere.

David Levi, Senior Managing Director at CBIZ MHM, says, for a location-independent worker, there would need to be a new client or a new situation to “trigger” a moving opportunity. “A consultant who has been working with the same four clients for several years is unlikely to be able to deduct moving costs without a significant reason for the move,” he says.

That doesn’t mean a digital nomad is completely out of luck. Craig W. Smalley, an IRS Enrolled Agent with CWSEAPA Accounting and Financial Services says you could deduct any expenses directly related to moving business items. “For instance,” he says, “if you have a desk, server, or anything that needs special attention when it is moved, you could deduct those items as a necessary and ordinary business expense.”

Digital nomads can’t take advantage of the tax breaks for moving just because they’d like to relocate closer to the beach or mountains. But if you are a married couple filing jointly, only one spouse needs to pass the tests above to qualify for the deduction.

A couple more notes on deducting moving expenses. If you meet the requirements outlined above, deductible expenses include reasonable costs for moving household goods and personal effects. That might include moving trucks, professional moving services, packing supplies, and storing and insuring your belongings for up to 30 days. You can also deduct the cost of traveling to your new home. If you travel by car, you can claim either actual expenses (i.e. the amount you pay for gas and oil for your vehicles) or take the standard mileage deduction of 19 cents per mile. You can’t deduct expenses for meals along the way.

Moving expenses are an “above the line” deduction, meaning you don’t have to itemize to take advantage.

From Forbes Women@Forbes by Janet Berry-Johnson