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Pack up hefty deductions for a lifestyle move

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in Small Business Tax,Small Business Tax Deduction Strategies

You may think that you won’t qualify for a moving expense deduction if you’re not switching jobs from one company to another. But you still might qualify if you go into business for yourself.

Strategy: Make sure you meet the requirements for self-employed individuals. The rules area little tougher, but you can still nail down some hefty tax deductions.

Say you’re ready to quit the rat race and move out of the city. To qualify for moving expense deductions, you must pass a two-part test involving “time” and “distance.”

1. The time test: If you’re an employee, you must work full time for at least 39 weeks during the first 12 months after arriving in the general area of the new job. If you become self-employed, you must work full time for at least 39 weeks during the first 12 months and a total of at least 78 weeks during the first 24 months after arriving in the general area.

2. The distance test: The new workplace must be at least 50 miles farther from your old home than your old home was from your former place of work. The distance between these two points is the most-commonly traveled route.

So long as you meet both requirements, you can write off your moving expenses, even if you now work for yourself.

Write off the direct moving expenses, including the cost of transferring household goods and personal effects such as furniture, appliances, pots and pans. However, you cannot deduct indirect expenses like meals, pre-move house-hunting expenses, temporary living quarters and attorney fees and real estate commissions related to the move.

Don’t forget to include the expenses of every household member. You may incur extra costs if your child is away at college or if you’re taking in an elderly relative. The IRS has even permitted deductions for the cost of transporting the family pet! (IRS Revenue Ruling 66-35)

Tip: If you drive your car to the new home,deduct your actual travel expenses such as gas, oil, repairs, etc., along the way, plus lodging for longer trips. Alternatively, use the flat rate deduction of 19 cents per mile for 2008.

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