When you're facing a long-distance relocation for a new job or promotion, planning your move can be exciting and stressful. You may be debating whether to rent an apartment or purchase a home, or deciding whether you should keep (or purchase) a car or rely on public transportation. However, there are a couple of factors that can heavily impact the financial success of your move. Read on for the two most important decisions when it comes to moving costs.
1. Consider the tax benefits and costs of your moving plans
Whether your company is paying all your relocation expenses or you're paying your own way, your taxes will be impacted.
When your move is prompted by a change in job or work location, you're able to deduct certain moving costs on your federal income taxes -- but only if you pay your own expenses. Most individuals are able to deduct all their related moving expenses except meals, incurred up to one year from the date of the move itself. This can not only cover the cost of traveling to your new location, house-hunting, and hiring a moving company, but also later rentals of storage units or other post-moving expenses for up to a year after your move. This tax deduction reduces your adjusted gross income (AGI) and is available regardless of whether you itemize your deductions.
If your employer is paying your relocation expenses, you may instead be liable for additional taxes on some reimbursements provided. In general, payments made by your employer to cover the cost of traveling to your new city, as well as the cost to move your personal belongings, are not taxable to you as income. However, additional moving costs -- such as rental cars, cash allowances, house-hunting expenses, or meals on the road -- are taxable to you as "other income."
You'll want to keep these distinctions in mind when negotiating your new salary. If you're already in a high tax bracket, you may be better off paying (and deducting) your own moving expenses rather than accepting reimbursement from your employer for anything but the basic costs of moving your furniture and family. In other cases, the value of having one's moving costs fully paid will outweigh the relatively small portion of income taxes paid on these reimbursements, or you may not be able to negotiate a higher starting salary even if you turn down reimbursement of your moving expenses.
2. Weigh the costs of doing it yourself or hiring a moving company
Because most costs related to the moving of furniture and other personal belongings (including pets) are either deductible or tax-free when reimbursed, there are some financial benefits to selecting a professional moving company. These household moving companies can help take the stress and uncertainty out of your move -- some even offering services that include packing and unpacking your belongings. When using a moving company, you'll only need to concentrate on transporting yourself and your family from your old to your new home, rather than trying to simultaneously house-hunt, pack, and physically transport your own belongings.
However, if you would like to exercise complete autonomy over your move, have a number of friends or relatives who are able to help you haul furniture at no cost, or are moving only a small number of belongings, renting a moving truck and personally hauling your belongings from your old to your new home may be worthwhile. You'll still be able to deduct these moving expenses, and you may end up saving some money if you have enough volunteers to carry furniture and other belongings into your home.