Millions of people move each year, often for reasons connected with work. If you’re one of them, be aware that moving can have important tax consequences.
Retirement plans. If you participate in an employer-provided retirement plan, you may have several choices when you leave a job. You can roll your retirement funds into an IRA or into a new employer’s plan, or you may be able to leave the money in your former employer’s plan. Keep in mind that any amount distributed directly to you is subject to automatic 20% income tax withholding, and you may also have to pay a 10% early withdrawal penalty.
401(k) loans. If you have an existing 401(k) loan, pay it off. Why? If you leave an employer and can’t repay the loan within a preset time, the loan balance is considered a withdrawal. That means you’ll owe income taxes and possibly a 10% penalty.
Job search expenses. Expenses incurred to look for a new job are tax-deductible, even if your job search doesn’t land you that coveted position. To qualify, you must be looking for a job in your current occupation.
Moving expenses. If your job-related move meets a distance test and a time test, you can deduct the costs of moving your family and your household goods.
Home sale. When you sell your home, you can exclude up to $250,000 of the gain from your income. The exclusion amount is $500,000 for married couples filing a joint return. To qualify for the full exclusion, you must have owned and occupied the house as your main home for two of the five years prior to the sale. A partial exclusion may apply if you fail the two-year test due to a job-related move.
If you’re considering a job-related move and want help sorting out the tax issues, give us a call.