If you plan to move your business, you’re far from alone. Companies are constantly seeking ways to reduce costs while increasing revenues and profits. A business move is often a way to cut costs in the long run.
Relocating is often a prudent business strategy if your company can find a new location with lower rent or taxes, for example. In recent years, many large and small companies have moved from higher-cost states like New York and California to lower-cost states like Texas and Arizona. Surveys find each year 38% of those who move are corporations, and 44% are small businesses.
But moving itself involves costs. Moving an entire office takes work. You must evaluate the costs of moving against the expected benefits. One thing that helps is that moving costs are usually tax-deductible for corporations and LLCs.
Business Moving Expenses Tax Deduction
Corporations and LLCs
If your company is a corporation or limited liability company, you can deduct the entire cost of a relocation from business taxes. This includes packing boxes, loading, and transport costs. Even brokerage commissions to find a new space and surveys of the new office location to arrange furniture and equipment are deductible. If you provide relocation assistance to employees are part of the business move, the cost of those relocation packages are deductible.
Sole Proprietorships and Partnerships
If your company is a partnership or sole proprietorship, your business moving expenses are deductible as long as your new location is at least 50 miles farther from your home than your old location; you work in the new location for at least 39 weeks of the year after you move or at least 78 weeks of the first two years.
If you don’t meet these criteria or work only part-time, you cannot deduct moving expenses. Part-time work is based on the standard for your industry. If you work only four hours per day, and that is the full-time standard for your industry, then you are considered to be working full-time.
The deduction does not apply to home offices: you cannot deduct your moving expenses if you run a home-based business and move to a new home. If you’re self-employed, you can deduct the moving expenses from the business taxes, but not your personal income taxes.
Moving to a Second Office
If your company opens a second office, any expenses related to moving office furniture or equipment to the second office location are deductible. If the second office files its own taxes, such as if it’s an independent branch office, the main office and second office can divide the costs and deductions between them.
How to Claim Deductions
As with any deduction, you’ll need to keep detailed records and receipts. You’ll also need to be able to prove the move was for business-related reasons, and each expense was related to the business move.
Claiming Deductions for Personal Moving Expenses
As of 2018, your moving expenses are not deductible on your personal federal income taxes, and your employees cannot deduct their unreimbursed moving expenses.
A few states allow moving expense deductions on state income taxes. These deductions include moving company services, travel costs, and storage when the distance you moved exceeds commuting distance (50 miles more than your current commute). The states are: Arkansas, California, Hawaii, Massachusetts, New Jersey, New York, and Pennsylvania.
Moving expenses that are typically deductible include:
Moving household goods and personal property. The costs related to moving items in and around your home are deductible. This includes packing, transport, insurance, trailer hauling, and temporary storage. However, you cannot deduct the cost of items that you buy while traveling to your new home.
Storing and insuring your items. Often, you must vacate your old home before you’re ready to move. Also, sometimes your new home isn’t ready to move in when you arrive. In these cases, you can deduct the cost of storing and insuring your household goods for up to 30 consecutive days after they are moved out of your old home and up to 30 days before they are delivered to your new home.
Travel expenses. Travel expenses for yourself and your family from your old location to your new one are deductible. These include airfare, lodging, and travel expenses like gas and oil for your car, using standard mileage rates. However, meals while traveling between cities are not included.
You may have many other moving expenses that are not deductible. These may include pre-move trips to your new location to find a home, registering your car in your new state, breaking a lease to move out of your apartment, unused time on membership in gyms and clubs, cost of selling your home and buying a new one, and deactivation and activation fees on electricity, gas and water, phone, Internet service, and other utilities.
If your employer reimbursed part of your moving expenses, then only the part you paid out of pocket above the reimbursed amount is deductible. If your actual moving costs were less than the reimbursed amount, you cannot deduct any moving expenses. This applies if you received a lump sum from your employer to cover your move. For example, if your employer gave you $10,000 and your actual expenses were $12,000 then only $2,000 is deductible. If your actual expenses were $8,000, then you cannot deduct any expenses.
We hope you found this post, Can You Deduct Moving Expenses For Your Business? useful. Be sure to check out our post, How To Reduce Costs When Moving Your Office for more great information.