Relocation Negotiation
The first time the opportunity to relocate arises in your professional life it can be exciting, make the most of the buzz, 'cause it won't last. All too soon you can find yourself in a swamp of unexpected relocation costs, followed at year's end by unexpected taxes. Now, there is no point in discussing relocation costs during job offer negotiations until the rest of the offer is acceptable to you; it's the last issue you raise because it doesn't become relevant until all the other matters are settled. However, when you do come to negotiate relocation, a little knowledge of how the IRS looks at the issue can help.
Please note, this commentary is offered to create an awareness of the potential costs of relocation; it is in no way to be interpreted as the advice of a qualified tax advisor, whose counsel you are strongly recommended to seek concerning these issues.
Most companies expect to pay all or part of your relocation costs, unless you live within 50 miles of your new workplace. Similarly, IRS does not recognize relocation expenses as tax deductible when that relocation is within 50 miles. Now in some cities, NY comes to mind, a fifty mile commute can run two hours, so in certain metro areas an argument can be made to an employer for relocation assistance. When relocation does exceed the magic 50-mile mark some form of relocation assistance is usually available, but this varies from company to company, and your place in the corporate hierarchy.
If you are new to the world of work or on the lower rungs of the corporate ladder, you may only be offered reimbursement for a U-haul truck and few hundred dollars for incidental expenses; in which case you'll need to negotiate to get beyond the most basics relocation costs. The higher up the corporate ladder you climb, the more relocation services you are likely to receive in the initial ofering.
Remember, that in negotiation, if you don't ask you don't get; but if you do ask in a reasonable way (demonstrating your understanding of the likely costs to you) you have a good chance of being able to relocate without too much in the way of out-of-pocket expenses.
The first thing that you should be aware of is that much of the $ value of any relocation package you negotiate is invariably regarded as compensation by the government and taxed accordingly. With a typical executive relocation running around $50,000, the tax implications of relocating to accept a new job, could come as a nasty shock at year's end.
Only some aspects of your relocation are tax deductible. For example, the costs of moving your personal belongings and one trip to the new location are deductible, but meals en route are not; neither are house hunting trips and the costs of temporary accommodation. Temporary living expenses, the cost of selling, buying or leasing an old or new residence, including legal and real estate fees, or settling an unexpired lease are not covered. Moving personal effects such as a sailboat can be questioned and are frequently denied. As tax years that include relocation can increase the likelihood of a tax audit, you will want to consult with a tax advisor throughout this process to maximize your coverage and minimize your exposure.
If you sell your home at a loss and the employer reimburses you for this, the IRS will regard such payments as taxable income. You should also note that when those house-hunting trips, temporary living costs legal and real estate expenses and meals etc are reimbursed, the IRS requires the company to report this as income on your W2. Because the IRS sees these items as taxable income, doesn't mean a company who wants you on the payroll will not consider covering your exposure. It is a smart idea to ask the employer to calculate and cover you for as much of these expenses as you can, including any tax burden.
More on negotiating relocation expenses...
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