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Deducting the Expenses of Moving to a Foreign Country

Deducting the Expenses of Moving to a Foreign Country

If you are moving to a foreign land to settle, start a new job, or even set up a business, the US Expat taxes might qualify you for some tax exclusion. One, however, needs to apply for this exception as getting it does not come on a platter of gold. 

Besides, you are better off talking to a tax professional such as PAT RASKOB to assist and guide you on the right step to take to get some impressive tax savings. Bear in mind, however, that getting a deduction on moving expenses is valid provided that the move to the new country is connected to a new job. 

Essential Criteria one Must Meet.

There are some requirements that a US Expat must meet before they become eligible to claim moving expense deduction on their tax return. These criteria are:

  1. You are moving to commence a new job.

  2. The distance test must be passed. 

  3. The provision of time tests must be satisfied.

One needs to meet the physical presence or Bona Fide Residence test for at least 120 days in the year you move. This is essential as it helps link the movement expenses to the entire income for the year. If an expat could not satisfy the physical presence test for the 120 days, the moving costs will be linked to the income you had over the two-year gap. 

Allocating Moving Expenses 

Also, the allocation of moving expenses differs, depending on whether you moved from another country from the US or moved into the US. If the movement were to another country from the US, the moving expenses would be allocated to two years. In moving to the US from another foreign country, the moving expenses will be allocated in the year of the move and the one before. 

One needs to file an extension for the tax return, which starts from the year you moved to the end of the second year of the movement. With this, you will have a definite figure for your deduction. 

Deducting Your Expenses 

  • Traveling costs that come from moving from your former home to the new one. It will also include all costs associated with lodging as well. 

  • Costs of shipment that comes from transporting your household stuff to the new place

  • What you incur as the cost to carry the household goods from the storage to the new home

  • What you incurred as storage for your personal and household belongings while doing your job. 

A Couple of Caveats are attached. 

Expats need to bear in mind that the income they got from another country is tied to the moving expenses incurred during the movement. With this, deduction of a section or your entire foreign earned income will disqualify you from deducting the moving expenses that go to the moving expenses. This does not matter if the deduction was made under the Foreign Earned Income Exclusion or the Foreign Housing Exclusion.

Finally, Uncle Sam needs to be aware of your intent to move abroad. This involves steps like updating your address detail to give them a heads up to know how to reach you. Form 8822 is the ideal form to update your address with uncle Sam.



Pat Raskob
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